ATURE 

.REST  I8S4-I899 

•••••••••••MBHHHMBBHMWMBMMII 

BOHM-BAWERK 


THE  LIBRARY 

OF 

THE  UNIVERSITY 
OF  CALIFORNIA 

SOCIAL  SCIENCES 


II  III 


RECENT   LITERATURE 

ON 

INTEREST 


RECENT    LITERATURE 

ON 

INTEREST 

(1884-1899) 

A  SUPPLEMENT  TO   "CAPITAL  AND   INTEREST" 


BY 

EUGENE   v.   BOHM-BAWERK 

AUSTRIAN   MINISTER   OF  FINANCE,   IN!)  HONORARY   PROFESSOR  OF  POLITICAL 
ECONOMY  IN  THE    UNIVERSITY   OF   VIENNA 


TRANSLATED  BY 

WILLIAM   A.    SCOTT,    PH.D. 

DIRECTOR  OF  THE   SCHOOL  OF  COMMERCE  AND    PROFESSOR   OF  ECONOMIC 
HISTORY  AND  THEORY   IN  THE   UNIVERSITY  OF  WISCONSIN 

AND 

PROFESSOR  DOCTOR  SIEGMUND  FEILBOGEN 

UNIVERSITATS-DOCENT  IN  THE  UNIVERSITY  OF  VIENNA 


THE   MACMILLAN   COMPANY 

LONDON :  MACMILLAN  &  CO.,  LTD. 
1903 

All  rights  reserved 


COPYRIGHT,   1903, 
BY  THE  MACMILLAN  COMPANY. 


Set  up,  electrotyped,  and  published  September,  1903. 


;;/;;;;;•'/;;;  Add1! 

lA  f  ^— 

GIFT 


NorfoooU 

J.  8.  Cuihing  &  Co.  —  Berwick  &  Smith  Co. 
Norwood,  Mass.,  U.S.A. 


SOCIAL 
SCIENCES 


TRANSLATOR'S    PREFACE 

THIS  little  volume  is  intended  as  a  supple- 
ment to  the  admirable  translation  of  the  first 
edition  of  Professor  Bohm-Bawerk's  "  Ge- 
schichte  und  Kritik  der  Capitalzins-Theorien," 
given  to  the  world  by  Professor  William  Smart 
of  Glasgow  in  1890.  During  the  twelve  years 
since  this  notable  contribution  to  the  critical 
literature  of  economic  science  has  been  avail- 
able to  English-speaking  students,  great  prog- 
ress has  been  made  in  the  realm  of  economic 
theory,  and  for  this  Bohm-Bawerk  and  Pro- 
fessor Smart's  translation  are  in  no  slight 
degree  responsible.  Whatever  may  be  the 
final  verdict  of  science  regarding  the  agio 
theory,  no  one  can  doubt  that  the  splendid 
example  of  criticism  and  analysis  which  is 
contained  in  Bohm-Bawerk's  work  has  raised 
theoretical  discussion  to  a  higher  level  and 
has  been  a  constant  and  powerful  stimulus 
to  investigation  in  this  field. 

M301921 


vi  TRANSLATOR'S   PREFACE 

In  the  United  States  the  appearance  of 
Smart's  translation  must  be  regarded  as  an 
event  of  prime  importance  in  the  history  of 
political  economy.  The  work  of  some  of  our 
theorists1  had  already  been  directed  along 
practically  the  same  line  as  that  of  Jevons 
and  the  Austrians,  and  a  new  generation  of 
young  economists  had  just  entered  the  field. 
Bbhm-Bawerk's  masterly  treatise  gave  support 
and  encouragement  to  the  former,  and  guidance 
and  stimulus  to  the  latter.  It  has  been  dis- 
cussed over  and  over  again  in  the  courses  in 
economic  theory  and  in  the  economic  semi- 
naries of  the  country,  and  it  is  safe  to  say 
that  no  candidate  for  the  doctorate  in  econom- 
ics during  the  last  twelve  years  has  been 
absolved  from  the  requirement  of  familiarizing 
himself  with  this  work. 

Abundant  proof  of  Bohm-Bawerk's  influence 
is  furnished  by  our  literature.  A  glance  at 
the  files  of  the  Political  Science  Quarterly, 
the  Quarterly  Journal  of  Economics,  and  the 
Annals  indicates  that  a  large  proportion  of 

1  Notably  Professor  John  B.  Clark  and  Professor  Simon  N. 
Patten. 


TRANSLATOR'S   PREFACE  yii 

the  articles  treating  of  economic  theory  are 
either  directly  upon  some  phase  of  Bbhm- 
Bawerk's  work  or  theories,  or  have  been 
clearly  influenced,  if  not  directly  inspired,  by 
them.  Of  the  books  on  economic  theory 
which  have  appeared  during  the  last  twelve 
years,  not  one  that  I  can  recall  fails  to  take 
account  of  his  work,  and  few,  if  any,  of  them 
fail  to  show  the  effects  of  his  influence.  It 
is  impossible  to  say  as  much  as  this  of  any 
other  book  or  any  other  man.  Great  as  has 
been  Marshall's  influence,  it  has  not  approxi- 
mated Bohm-Bawerk's  either  in  scope  or  in- 
tensity. 

In  1900  the  second  edition  of  the  "  Ge- 
schichte  und  Kritik  der  Capitalzins-Theorien  " 
appeared,  and  the  present  volume  contains 
in  its  nine  main  chapters  a  translation  of  the 
Appendix,  in  which  Bohm-Bawerk  reviews  the 
literature  on  interest  which  had  appeared  since 
1884,  the  date  to  which  the  first  edition  trans- 
lated by  Smart  brought  the  subject.  In  this 
preface  we  propose  to  give  a  summary  of  the 
most  important  of  the  other  additions  con- 
tained in  the  second  edition.  These  are  the 


viii  TRANSLATOR'S   PREFACE 

author's  Preface,  chapter  XI  on  John  Rae, 
and  a  supplement  to  the  chapter  on  Karl 
Marx.  To  the  author  and  the  translators  it 
has  not  seemed  necessary  or  desirable  to 
present  a  complete  translation  of  these  less 
important  additions.  A  brief  summary  is 
sufficient  to  indicate  their  general  character 
and  scope,  and  the  English-speaking  reader 
who  is  unfamiliar  with  German  and  who 
desires  more  may  avail  himself  of  Miss  Alice 
M.  Macdonald's  translation l  of  Bohm-Bawerk's 
criticism  of  the  posthumous  volumes  of  Karl 
Marx's  "Das  Kapital,"  of  the  author's  reply 
to  Walker's  strictures  in  the  Quarterly 
Journal  of  Economics?  and  of  Rae's  book 
itself.3 

The    Preface  of   the  second   edition   treats 

1  "  Karl  Marx  and  the  Close  of  his  System."    A  Criticism  by 
Eugene  v.  Bohm-Bawerk.     Translated  by  Alice  M.  Macdonald, 
with  a  preface  by  James  Bonar,  M.A.,  LL.D.     London,  T.  Fisher 
Unwin,  Paternoster  Square,  1898. 

2  "  The  Positive  Theory  of  Capital  and  its  Critics."  Quarterly 
Journal  of  Economics,  April,  1895. 

8  "  Statement  of  some  new  principles  on  the  subject  of  Political 
Economy,  exposing  the  fallacies  of  the  system  of  free  trade,  and 
of  some  other  doctrines  maintained  in  the  'Wealth  of  Nations.'" 
Boston,  1834. 


TRANSLATOR'S   PREFACE  ix 

chiefly  of  the  author's  defence  of  his  method 
against  the  strictures  of  Alfred  Marshall  and 
of  the  late  Francis  A.  Walker.  These  men 
had  charged  Bohm-Bawerk  with  misinterpret- 
ing many  of  the  authors  whom  he  criticised 
in  "  Capital  and  Interest,"  claiming  that  he  fre- 
quently mistook  "  blunders  of  expression  "  for 
errors  of  judgment.  Walker  was  a  firm  ad- 
herent of  the  productivity  theory,  and  was 
unable  to  believe  that  any  really  able  thinker 
could  have  sought  for  an  explanation  of  in- 
terest in  any  other  direction.  He,  therefore, 
denied  the  separate  existence  of  the  abstinence 
and  the  use  theories.  He  claimed  that  the 
authors  of  these  so-called  theories  intended 
them  only  as  "a  social  justification  of  interest," 
and  did  not  themselves  mistake  them  for 
adequate  explanations  of  the  causes  of  this 
phenomenon.  In  this  connection  he  men- 
tioned especially  Hermann,  Karl  Menger,  and 
Senior. 

Professor  Marshall  finds  the  explanation  of 
interest  in  the  cooperation  of  what  he  calls  the 
"  productiveness  "  and  the  '  prospectiveness  "  of 
capital,  the  former  determining  the  demand  for 


X  TRANSLATOR'S    PREFACE 

that  factor  of  production,  and  the  latter  limiting 
the  supply.  He  believes  that  most  of  the 
writers  on  interest  have  had  both  these  ele- 
ments of  the  problem  in  mind,  and  have  dif- 
fered from  each  other  chiefly  in  the  fact  that 
some  have  laid  more  emphasis  upon  the  one 
element,  and  others  upon  the  other.  He  has 
expressed  the  opinion  that  many  of  the  au- 
thors criticised  by  Bohm-Bawerk  would  not 
have  accepted  his  statements  as  fair  and  com- 
plete presentations  of  their  views.1 

In  reply,  Bohm-Bawerk  says  that  the  ques- 
tion at  issue  between  himself  and  such  critics 
as  Walker  and  Marshall  does  not  so  much 
concern  the  interpretation  and  estimation  of 
the  views  of  other  authors  as  the  real  essence 
of  the  interest  problem,  and  the  requirements 
for  its  solution.  Regarding  what  the  authors 
criticised  really  meant,  he  is  quite  willing  to 
leave  the  decision  to  the  intelligent  readers  of 
his  book,  for  whose  benefit  he  has  very  often 
quoted  their  exact  words;  but  in  justification 
of  his  view  of  the  nature  of  the  problem  of 
interest,  and  the  conditions  necessary  for  its 

1  "Principles  of  Economics,"  3d  ed.,  pp.  142-664. 


TRANSLATOR'S   PREFACE  xi 

solution,  he  submits  some  characteristic  state- 
ments of  Walker  and  Marshall  to  analysis 
and  criticism. 

He  disposes  of  Walker  in  a  single  para- 
graph. Referring  to  his  statement  regarding 
the  teachings  of  Hermann,  Menger,  and  Senior 
that  "  they  thus  reached  a  social  justification  of 
interest  which  no  one  of  them  probably  ever 
mistook  for  a  scientific  ascertainment  of  the 
cause  of  interest,"  and  that  on  account  of 
their  "  blunders  in  expression  "  Bohm-Bawerk 
ascribed  to  them  independent,  deeply  thought- 
out  theories  which  they  never  held,  our  au- 
thor says :  "  I  do  not  think  that  I  need  waste  a 
single  word  to  prove  that,  on  the  contrary,  it 
would  have  been  most  ungenerous,  and  for 
a  true  historian  absolutely  impossible,  to  have 
simply  obliterated  the  use  and  abstinence  theo- 
ries from  the  history  of  the  development  of  in- 
terest theories  and  to  have  drawn  the  old  story 
of  the  productivity  theory  from  the  most  widely 
differing  methods  of  explanation,  or,  more 
accurately,  to  have  forced  that  interpretation 
upon  them." 

The  criticism  of   Marshall  bears  upon  two 


xii  TRANSLATOR'S   PREFACE 

points  chiefly.  In  Bohm-Bawerk's  opinion  he 
overestimates  the  explanatory  power  of  the 
cooperation  of  "  productiveness  "  and  "  pro- 
spectiveness,"  and  is  deceived  regarding  the 
actual  relation  in  which  the  different  groups  of 
theories  stand  to  this  cooperation.  On  the  first 
point  Bohm-Bawerk  refers  to  a  passage  in  the 
chapter  on  the  eclectics,  in  which  he  says  that  no 
impartial  observer  could  fail  to  see  that  interest 
is  in  some  way  connected  with  the  productivity 
of  capital,  and  with  the  abstinence  required  for 
saving,  but  such  an  observation,  he  says,  comes 
far  short  of  an  explanation  of  interest.  It  may 
be  compared  to  the  observation  that  a  rainbow 
appears  whenever  the  sun  strikes  a  rain-cloud 
at  a  certain  angle.  No  one  would  regard  this 
as  a  scientific  explanation  of  the  rainbow.  It 
is  the  duty  of  science  to  point  out  the  exact 
connection  between  this  apparent  cause  and  its 
effects,  and  the  explanation  would  be  very  dif- 
ferent according  as  the  scientist  assumed  the 
undulatory  or  the  emission  theory  of  light.  In 
like  manner,  "  productiveness  "  and  "  prospec- 
tiveness "  furnish  no  explanation  of  interest. 
They  constitute  only  the  framework  of  an 


TRANSLATOR'S   PREFACE  xiii 

explanation.      The   problem    is   to   show   the 
connection  between  these  facts  and  interest. 

The  injustice  of  Marshall's  charges  and  his 
evident  misunderstanding  of  Bohm-Bawerk's 
real  attitude  toward  the  authors  he  criticises 
is  further  shown  by  reference  to  certain  pas- 
sages in  the  first  edition  in  which  our  author 
pointed  out  the  affinity  between  the  use  and  the 
productivity  theories.  In  one  place1  he  called 
the  former  an  offshoot  of  the  latter,  and  in  an- 
other 2  he  said :  "  This  theory  [the  use  theory] 
assumes  capital  to  be  productive."  Again,  on 
page  187,  he  said:  "  The  relation  of  use  theories 
to  the  productive  power  of  capital  will  not, 
however,  be  found  stated  so  clearly  in  the  writ- 
ings of  their  representatives  as  I  have  thought 
necessary  to  state  it.  On  the  contrary,  indeed, 
appeals  to  the  productive  power  of  capital  long 
accompany  the  development  of  the  use  theory 
proper,  and  we  are  very  often  left  in  doubt 
whether  the  author  relies,  for  his  explanations 
of  surplus  value,  more  on  the  productive  power 
of  capital  or  on  the  arguments  peculiar  to  the 
use  theory." 

1  Smart's  translation,  p.  185.  2  Ibid.,  p.  186. 


xiv  TRANSLATOR'S   PREFACE 

Marshall  reproaches  our  author  for  having 
failed  to  credit  some  of  the  naive-productivity 
theorists  with  a  recognition  of  the  significance 
of  abstinence  in  the  explanation  of  interest. 
In  reply,  Bohm-Bawerk  affirms  that  he  noted 
every  express  utterance  of  the  most  important 
writers  of  this  group  indicative  of  such  recog- 
nition ;  for  example,  of  J.  B.  Say,  Roscher, 
Rossi,  Leroy-Beaulieu,  Cauwes,  and  others. 
He  adds  that  he  classed  as  eclectics  those 
writers  who  combine  the  distinct  and  explicit 
recognition  of  sacrifice  and  abstinence  with 
positive  assertions  of  the  independent  value- 
creating  power  of  capital,  but  insists  that  there 
are  writers  belonging  to  the  "naive-produc- 
tivity "  group  who  do  not  accompany  their 
emphatic  assertions  of  the  independent  pro- 
ductivity of  capital  with  any  allusion  to  the 
concurrent  influence  of  sacrifice  or  "prospec- 
tiveness,"  and  that  he  would  have  been  unjust 
to  these  authors  and  unfaithful  to  history  if 
he  had  assumed  that  they  recognized  such  an 
influence.  "  I  believe,"  he  says,  "  that  a  cer- 
tain tendency  of  thinking,  once  rather  popular, 
though  at  present  entirely  obsolete,  led  to  the 


TRANSLATOR'S   PREFACE  xv 

belief  that  the  theoretical  problem  of  interest 
could  be  perfectly  explained  by  reference  to 
the  independent,  value-creating  power  of  capi- 
tal, and  that  this  tendency  occupies  a  middle 
position  in  point  of  time  between  the  old  physi- 
ocratic  view  of  the  exclusive,  value-creating 
power  of  land  and  the  more  recent  socialistic 
doctrine,  now  on  the  road  to  destruction,  of 
the  exclusive,  value-creating  power  of  labour, 
and  is  allied  to  both  these  ideas."  He  would, 
therefore,  have  been  unjust  to  history  if  he  had 
failed  to  point  out  this  tendency.  He  would 
have  been  unjust  to  the  writers  he  discussed  if 
he  had  criticised  them  for  views  which  he  as- 
sumed, without  direct  evidence  and  sometimes 
even  against  indirect  evidence,  that  they  held. 
He  concludes  with  the  statement  that  in  his 
opinion  Marshall  would  not  have  brought 
against  him  the  charges  to  which  he  has  been 
making  a  reply  "  had  not  unfortunately  the  ex- 
traordinary clearness  and  exactness  which  is 
habitual  to  him  in  the  conception  and  working 
out  of  his  theoretical  ideas  failed  him  in  that 
part  of  his  most  excellent  work  devoted  to  the 
subject  of  capital." 


xvi  TRANSLATOR'S   PREFACE 

Next  to  the  Appendix  here  translated  on  the 
recent  literature  of  interest,  the  most  important 
addition  to  the  second  edition  is  the  chapter 
on  John  Rae  inserted  between  the  chapters  on 
the  labour  and  the  exploitation  theories.  Rae 
clearly  anticipated  some  of  Bohm-Bawerk's 
ideas,  though  this  fact  was  not  known  to  the 
latter  at  the  time  of  the  publication  of  the  first 
edition,  and  in  this  chapter,  which  contains  an 
excellent  summary  and  criticism  of  Rae's  work, 
this  fact  is  clearly  recognized,  and  the  precise 
points  anticipated  explained. 

John  Rae  was  a  Scotchman  who  emigrated 
to  Canada,  and  in  1834  wrote  a  book  which 
was  published  in  Boston  and  entitled  "  State- 
ment of  some  new  principles  on  the  subject  of 
Political  Economy,  exposing  the  fallacies  of  the 
system  of  free  trade,  and  some  other  doctrines 
maintained  in  the  *  Wealth  of  Nations/  "  As 
the  title  implies,  the  book  was  written  prima- 
rily for  the  purpose  of  pointing  out  the  inappli- 
cability of  Adam  Smith's  free  trade  doctrines 
to  Canada,  and  does  not  seem  to  have  attracted 
much  attention  among  the  economists  of  that 
time.  John  Stuart  Mill  (Bk.  I,  Ch.  XI)  made 


TRANSLATOR'S   PREFACE  xvii 

some  quotations  from  it,  and  in  a  note  ex- 
pressed a  high  opinion  of  the  author  and  his 
work.  In  1856  this  book  was  translated  into 
Italian  and  published  as  Volume  XI  of  the 
"Biblioteca  dell'  Economista,"  but  Italian  econo- 
mists do  not  seem  to  have  read  it  extensively. 
At  any  rate,  Luigi  Cossa  in  his  "  Introduzione 
allo  studio  dell'  Economia  Politica "  devotes 
but  five  lines  to  it,  in  which  it  becomes  evident 
that  his  knowledge  of  it  was  derived  from  Mill 
and  not  from  the  book  itself.  In  view  of  these 
facts  and  the  scarcity  of  the  book  in  Germany, 
it  is  not  surprising  that  Bohm-Bawerk  had  not 
read  it  at  the  time  of  the  publication  of  his  first 
edition.  His  attention  was  called  to  the  im- 
portance of  this  work  by  C.  W.  Mixter's  article 
in  the  Quarterly  Journal  of  Economics  for  Jan- 
uary, 1897,  entitled  "A  Forerunner  of  Bohm- 
Bawerk,"  and  Professor  Karl  Menger  placed 
a  copy  of  the  book  at  his  disposal. 

Rae's  book  is  divided  into  three  parts,  the 
first  treating  of  the  lack  of  identity  between 
the  interests  of  individuals  and  nations,  the 
second  of  "the  nature  of  stock  and  the  laws 
governing  its  increase  and  diminution,"  and 


xviii  TRANSLATOR'S  PREFACE 

the  third,  "of  the  operations  of  the  legislator 
on  natural  stock."  Part  II  contains  fifteen  of 
the  twenty-two  chapters,  and  two  hundred  and 
eighty  of  the  three  hundred  and  eighty-seven 
pages  of  the  book,  and  it  is  to  this  part  that 
Bohm-Bawerk  devotes  his  analysis  and  criti- 
cism in  the  chapter  here  under  consideration. 
Rae  begins  his  exposition  of  the  nature  of 
stock  by  describing  production  as  a  process  of 
fashioning  or  manipulating  the  "materials" 
of  nature  into  "  instruments  "  which  shall  pro- 
duce "events"  in  the  future.  The  objects  of 
men's  desires,  or  the  means  of  satisfying  their 
wants,  are  "  mere  arrangements  of  matter,"  and 
all  the  combinations  or  manipulations  of  mate- 
rials made  by  men  for  this  purpose  he  terms 
"  instruments."  "  In  general,  then,"  he  says  on 
page  87,  "  all  those  changes  which  man  makes  in 
the  form  or  arrangement  of  the  parts  of  material 
objects,  for  the  purpose  of  supplying  his  future 
wants,  and  which  derive  their  power  of  doing 
this  from  his  knowledge  of  the  course  of  events, 
and  the  changes  which  his  labour,  guided  by  his 
reason,  is  hence  enabled  to  make  in  the  issue  of 
these  events,  may  be  termed  instruments." 


TRANSLATOR'S   PREFACE  xix 

This  description  of  the  nature  and  purposes 
of  production  bears  considerable  resemblance 
to  Bohm-Bawerk's  treatment  of  the  subject  in 
the  early  chapters  of  the  "  Positive  Theory,"  in 
which  he  describes  "  goods,"  their  "  material 
services,"  and  the  functions  of  capital.  Rae's 
conception  of  "  instruments "  and  Bohm- 
Bawerk's  conception  of  capital  or  "  intermedi- 
ate goods,"  however,  are  not  identical,  as  the 
latter  shows  in  a  footnote  on  pages  379,  380, 
but  they  have  much  in  common. 

Rae  next  describes  the  common  features  of 
these  instruments.  "  They  are  all,"  he  says, 
"  directly  formed  by  human  labour,  or  indirectly 
through  the  aid  of  other  instruments  them- 
selves formed  by  human  labour ; "  they  all 
"  bring  to  pass,  or  tend,  or  help,  to  bring  to 
pass  events  supplying  some  of  the  wants  of 
man,  and  are  then  exhausted ; "  and  a  space  of 
time  intervenes  between  their  formation  and 
their  exhaustion.  The  power  of  instruments 
to  bring  events  to  pass,  or  the  amount  of  goods 
they  can  produce,  is  termed  their  "capacity." 
A  proper  measure  of  this,  in  Rae's  opinion,  is 
the  amount  of  labour  for  which  the  returns  of 


xx  TRANSLATOR'S   PREFACE 

the  instruments  will  exchange,  this  amount 
being  measured  by  the  wages  rather  than  the 
sacrifices  of  labour.  He  adds  that  a  com- 
parison of  the  capacities  of  different  instruments 
belonging  to  the  same  class,  that  is,  contribut- 
ing to  the  satisfaction  of  the  same  category 
of  wants,  may  be  made  on  the  basis  of  their 
relative  physical  effects,  as,  for  example,  the 
relative  heating  power  of  different  woods. 

Rae  then  classifies  instruments  according  to 
the  advantages  or  profits  which  may  be  derived 
from  their  ownership.  This  involves  a  com- 
parison of  the  cost  of  their  production  in 
labour,  of  the  amount  of  their  returns  or  prod- 
uct, and  of  the  length  of  time  intervening 
between  the  formation  of  the  instruments  and 
their  exhaustion.  The  relation  between  these 
three  factors  is  indicated  by  arranging  the 
instruments  in  orders  or  series  "  determined  by 
the  period  of  time  at  which  instruments  placed 
in  them  issue  (or  would  issue  if  not  before 
exhausted)  in  events  equivalent  to  double  the 
labour  expended  in  forming  them."  Thus 
instruments  belonging  to  series  A  will  yield  a 
return  equal  to  double  their  cost  in  one  year, 


TRANSLATOR'S   PREFACE  xxi 

those  in  series  B  in  two  years,  in  series  C  in 
three  years,  etc. 

The  most  important  part  of  Rae's  exposition 
now  follows,  in  which  he  explains  the  causes 
and  the  laws  of  the  increase  and  decrease  of  the 
instruments  of  a  society.  The  former  are  said 
to  be  four  in  number:  (i)  "The  quantity  and 
quality  of  the  materials  owned  by  it ; "  (2)  "  the 
strength  of  the  effective  desire  of  accumula- 
tion /"  (3)  "the  rate  of  wages;"  and  (4)  "the 
progress  of  the  inventive  faculty."  Of  these  the 
second  and  fourth  receive  the  major  portion  of 
attention,  and  in  their  discussion  Rae  reveals 
the  points  of  chief  importance  in  his  theory  of 
capital  and  interest.  As  a  preliminary  to  this 
discussion  he  attempts  to  establish  the  follow- 
ing proposition :  "  The  capacity  which  any  peo- 
ple can  communicate  to  the  materials  they 
possess,  by  forming  them  into  instruments, 
cannot  be  indefinitely  increased,  while  their 
knowledge  of  their  powers  and  qualities  re- 
mains stationary,  without  moving  the  instru- 
ments formed  continually  onwards  in  the  series 
A,  B,  C,  etc.;  but  there  is  no  assignable  limit 
to  the  extent  of  the  capacity  which  a  people, 


xxii  TRANSLATOR'S   PREFACE 

having  attained  considerable  knowledge  of  the 
qualities  and  powers  of  the  materials  they 
possess,  can  communicate  to  them  without 
carrying  them  out  of  series  A,  B,  C,  etc.,  even 
if  that  knowledge  remain  stationary." 

The  first  part  of  this  law  is  established  by 
the  following  process  of  reasoning:  The 
capacity  of  instruments  can  be  increased  by 
making  them  more  durable  or  by  increasing 
their  efficiency.  In  the  first  case  a  larger 
amount  of  labour  must  be  expended  in  their 
production,  and,  even  if  this  new  labour  adds  as 
much  to  their  productive  power  as  that  previ- 
ously expended,  the  returns  are  moved  farther 
off  in  time,  and  in  consequence  the  instruments 
are  pushed  down  to  a  lower  series.  To  in- 
crease the  efficiency  of  an  instrument  likewise 
requires  the  expenditure  of  more  labour,  since 
instruments  of  greater  efficiency  can  only  be 
obtained  by  the  manipulation  of  scarcer  or 
more  refractory  materials.  The  increased  cost 
thus  necessitated  forces  the  instruments  into  a 
lower  series.  In  proof  of  the  second  part  of 
the  law  Rae  mentions  the  almost  innumerable 
combinations  of  productive  powers  and  mate- 


TRANSLATOR'S   PREFACE  xxiii 

rials  possible  in  nations  whose  knowledge  of 
nature  and  of  technique  is  extensive.  Under 
such  circumstances  the  movement  toward  the 
lower  series  is  slow  and  there  is  no  assignable 
limit  to  the  quantity  of  instruments  that  may 
be  produced  with  profit.  The  question  of  the 
increase  of  instruments  of  production,  there- 
fore, becomes  one  of  technique  or  knowledge 
of  natural  forces  and  materials  and  the  methods 
of  manipulating  them  on  the  one  hand,  and  of 
the  extent  to  which  a  people  will  be  willing  to 
carry  the  process  of  producing  instruments  of 
lower  and  lower  series  on  the  other;  that  is, 
of  what  Rae  calls  "  the  progress  of  the  inventive 
faculty,"  and  the  "  effective  desire  of  accumula- 
tion." The  former  increases  the  number  of 
instruments  which  may  be  produced  without 
greatly  increasing  the  number  of  lower  series, 
and  the  latter  determines  the  remoteness  of 
the  future  period  for  which  a  people  are  willing 
to  provide  by  the  sacrifice  of  present  labour  or 
its  equivalent. 

Rae's  analysis  of  the  circumstances  which 
determine  the  effective  desire  for  accumulation 
brings  him  to  the  discussion  of  the  relation 


xxiv  TRANSLATOR'S   PREFACE 

between  present  and  future  enjoyments.  Most 
men,  he  says,  discount  future  pleasures,  partly 
on  account  of  the  uncertainty  and  shortness  of 
life,  and  partly  on  account  of  their  inability  to 
realize  the  future.  Their  intellectual  qualities 
and  their  u  social  and  benevolent  affections " 
are,  therefore,  elements  in  the  problem.  The 
stronger  the  former  are,  the  more  keenly  they 
appreciate  future  needs,  and  the  less  liable  are 
they  to  be  influenced  by  the  passions  of  the 
moment ;  the  stronger  is  their  interest  in 
and  their  affection  for  others,  the  greater  their 
desire  to  influence  events  in  the  future.  The 
growth  of  family  and  social  ties,  the  develop- 
ment of  the  moral  powers  of  a  people,  and 
the  improvement  of  all  those  conditions,  social, 
political,  and  economic,  which  increase  the 
probability  that  we  ourselves,  or  those  for 
whom  we  care,  will  be  permitted  in  the 
future  to  enjoy  the  results  of  our  present  sac- 
rifices, are  calculated  to  strengthen  the  effective 
desire  for  accumulation. 

From  this  discussion  Rae  proceeds  to  the 
subject  of  the  division  of  labour  and  exchange. 
He  sees  the  advantages  of  the  former  in  the 


TRANSLATOR'S   PREFACE  xxv 

fact  that  when  a  worker  devotes  himself  to  one 
branch  of  production,  instruments  are  more 
continuously  used  and  more  quickly  exhausted, 
and  hence  are  raised  to  higher  and  more  pro- 
ductive series.  Their  increase  and  accumula- 
tion thus  become  more  profitable,  and  the 
effective  desire  for  accumulation  is  increased. 
This  method  of  viewing  the  advantages  of  the 
division  of  labour  is  considered  so  important 
by  Rae  that  he  devotes  a  special  appendix  to 
its  defence,  and  to  a  criticism  of  Adam  Smith's 
treatment  of  the  subject. 

The  discussion  of  the  division  of  labour  and 
of  exchange  leads  to  a  consideration  of  value 
which  he  explains  in  accordance  with  the  cost 
of  reproduction  theory,  to  which,  however,  he 
makes  one  important  and  very  significant  addi- 
tion. "  When  two  persons  in  the  same  society 
exchange  commodities,"  he  says  (p.  300),  ".  .  . 
the  exchanges  they  make  are  for  equal  quanti- 
ties of  labour,  reckoned  according  to  the  time 
when  applied,  and  the  actual  order  of  instru- 
mentsr1  The  time  element,  to  which  attention 
is  called  in  this  last  clause,  is  considered  by 

1  The  italics  are  mine. 


xxvi  TRANSLATOR'S   PREFACE 

Rae  of  equal  importance  with  labour.  Ma- 
terials, tools,  etc.,  as  well  as  labour,  are  con- 
sumed in  production,  and  they  must  be 
represented  in  the  price  of  the  goods.  In 
this  connection  he  shows  that  not  only  the 
labour  which  produced  these  instruments  must 
be  taken  into  consideration,  but  also  the  length 
of  time  that  must  elapse  before  that  labour  is 
remunerated.  The  rate  of  compensation  for 
this  element  of  time  will  depend  upon  the 
effective  desire  for  accumulation.  By  way  of 
illustration,  he  assumes  the  case  of  a  weaver 
who  can  weave  a  certain  amount  of  thread  into 
linen  in  thirty  days  with  the  aid  of  a  loom 
which  cost  one  hundred  days'  labour  and 
which  will  last  seven  years.  He  then  pro- 
ceeds as  follows :  "  Suppose  that  the  effective 
desire  of  accumulation  of  the  individual  is  of 
strength  sufficient  to  carry  him  to  the  order  G, 
doubling  in  seven  years,  that  the  loom  cost  one 
hundred  days'  labour,  and  that  it  will  be  ex- 
hausted in  seven  years ;  it  would  then  require 
to  return  two  hundred  days'  labour,  or  an 
equivalent,  at  the  end  of  that  period.  The 
return,  however,  is  not  delayed  so  long,  but 


TRANSLATOR'S    PREFACE  xxvii 

begins  to  come  in  daily,  immediately  after  its 
construction.  Calculating  then  what  yearly  re- 
turn is  equal  to  two  hundred  days  at  the  end 
of  seven  years,  in  the  estimation  of  a  man  who 
reckons  one  day  now  equal  to  two  then,  it  will 
turn  out  to  be  nearly  twenty  days.  We  may 
allow  that  the  loom  is  in  employment  three 
hundred  days  a  year ;  it  would,  therefore,  on 
these  principles,  have  to  return  two  days'  labour 
for  every  thirty  days  during  which  it  was  in 
operation,  and  the  weaver  would  consequently 
have  to  receive  an  equivalent  to  thirty-two 
days'  labour;  at  least,  had  he  not  a  moral 
certainty  of  receiving  this,  he  would  not  have 
formed  the  instrument,  and  were  such  return 
to  cease,  he  would  not  reconstruct  it"  (pp. 
169,  170). 

Farther  on  he  adds  that  "even  in  cases 
where  labour  alone  seems  to  be  paid  for,  the 
time  generally  also  forms  one  of  the  items  to 
be  taken  into  account.  Thus  an  individual 
contracts  to  fell  the  trees  on  a  certain  piece 
of  forest  land  in  a  North  American  settlement 
within  three  months.  If  then  he  be  paid  at 
the  commencement  of  the  three  months,  he 


xxviii  TRANSLATOR'S  PREFACE 

will  expect  to  receive  less  than  if  payment 
be  deferred  until  the  expiration  of  that  time, 
and  the  difference  between  the  two  amounts 
will  be  regulated,  as  in  other  cases,  by  the 
particular  orders  to  which  instruments,  in 
that  particular  situation,  are  generally  wrought 
up.  The  same  thing  holds  good  in  all  in- 
stances where  labour  is  paid  for  by  the  work 
executed,  or,  as  it  is  termed,  by  the  piece." 

The  same  idea  appears  in  another  passage 
in  which  the  difference  between  the  valuation 
placed  upon  present  and  future  goods  of  the 
same  kind  and  amount  is  expressed  in  a  strik- 
ing manner.  After  stating  that  all  instruments 
possess  a  capacity  for  supplying  wants  or 
saving  labour,  he  adds :  "  But  the  wants  which 
they  supply,  and  the  labour  which  they  save, 
are  in  general  not  immediate,  but  future.  Now 
we  cannot  estimate  the  same  amount  of  labour 
saved,  or  wants  supplied,  to-morrow,  and  five 
or  fifty  years  hence,  as  equivalent,  the  one  to 
the  other.  Thus,  if  we  compare  together  a 
hundred  full-grown  trees,  and  as  many  sap- 
lings, it  may  be  that,  estimated  in  the  supply 
they  yield  the  wants  of  futurity,  they  are  alike. 


TRANSLATOR'S  PREFACE  xxix 

If  the  former  be  cut  down  to-morrow,  they  may 
yield  a  hundred  cords  of  fire-wood,  and  if  the 
latter  be  cut  down  fifty  years  hence,  they  may 
yield  the  same.  We  should  not,  nevertheless, 
conceive  that  they  were  equal  the  one  to  the 
other.  What  measure,  then,  are  we  to  adopt 
for  comparing  them  and  other  such  instru- 
ments together,  and  thus  finding  an  expression 
in  a  quantity  of  immediate  labour  for  the  whole 
capacity  of  instruments  possessed  by  any  com- 
munity or  for  the  whole  stock  of  that  com- 
munity ?  The  natural  measure  would  seem  to 
be  the  relative  estimate,  which  the  individuals 
concerned  themselves  form  of  the  present  and 
the  future,  that  is,  the  strength  of  the  effective 
desire  of  accumulation  of  the  particular  com- 
modity. Thus  in  a  community  whose  effective 
desire  of  accumulation  is  of  a  strength  sufficient 
to  carry  it  to  the  formation  of  instruments  of 
the  order  E,  doubling  in  five  years,  an  instru- 
ment, which  at  the  expiration  of  five  years 
yielded  a  return  equivalent  to  two  days'  labour, 
might  fairly  be  estimated  as  equivalent  to  one 
day's  present  labour ;  if  at  the  expiration  of  ten 
years  it  yielded  an  equivalent  to  four  days' 


XXX  TRANSLATOR'S   PREFACE 

labour,  it  might  also  now  be  rated  at  one  day's 
labour,  and  so  for  other  periods"  (pp.  171,  172). 

In  this  connection  Bohm-Bawerk  calls  atten- 
tion to  the  fact  that  Rae  has  given  us  two 
methods  of  measuring  the  influence  of  the 
time  element  upon  value,  the  one  being  the 
strength  of  the  effective  desire  for  accumula- 
tion, and  the  other  the  productivity  of  the 
lowest  order  of  instruments  produced  by  the 
society  in  question.  That  these  two  measures 
are  not  identical  is  recognized  by  Rae  himself 
in  a  statement  in  which  he  distinguishes  be- 
tween cases  "where  the  effective  desire  of 
accumulation  of  a  community  has  had  oppor- 
tunity to  work  up  the  materials  possessed  by 
it  into  instruments  of  an  order  corresponding 
to  its  own  strength,"  and  those  "where  the 
accumulative  principle  has  not  yet  had  time 
fully  to  operate."  (See  pp.  172  sq.,  194,  264.) 

Bbhm-Bawerk  claims  that  the  latter  is  the 
normal  condition  of  things,  because  certain 
circumstances,  among  which  are  the  new  dis- 
coveries which  play  so  important  a  role  in 
Rae's  exposition,  prevent  the  complete  realiza- 
tion of  the  effects  of  the  psychological  facts 


TRANSLATOR'S   PREFACE  xxxi 

referred  to  in  the  expression  "the  effective 
desire  of  accumulation." 

The  longest  chapter  in  Rae's  book  treats 
"of  the  causes  of  the  progress  of  invention 
and  of  the  effects  arising  from  it."  This  sub- 
ject is  treated  historically,  and  in  a  very  inter- 
esting manner.  The  most  important  points 
for  the  student  of  interest  concern  the  way 
in  which  technical  progress  affects  the  magni- 
tude of  national  wealth  and  the  rate  of  interest. 

The  effect  of  discoveries  is  to  reveal  new 
or  more  suitable  materials,  or  new  qualities,  or 
new  methods  of  working  in  materials.  The 
first  effect  of  progress  along  this  line  is,  there- 
fore, to  render  labour  more  productive,  and  this 
effect  in  turn  changes  the  relation  between  the 
capacity  of  instruments  and  the  costs  of  their 
production,  and  thus  transfers  them  to  "more 
speedily  returning  orders,"  and  increases  the 
magnitude  of  the  wealth  of  the  nation.  Im- 
provements also  raise  the  rate  of  profits,  even 
if  no  change  takes  place  in  the  effective  desire 
for  accumulation,  since  they  increase  the  pro- 
ductivity of  all  instruments,  and  thus  the 
returns  of  every  series. 


xxxii  TRANSLATOR'S   PREFACE 

At  the  beginning  of  the  critical  part  of  his 
discussion,  Bohm-Bawerk  calls  attention  to 
the  fact  that  Rae's  chief  interest  was  in  the 
explanation  of  the  causes  of  the  increase  of 
national  wealth  rather  than  of  the  rate  of 
interest,  and  that  in  consequence  he  did  not 
accord  full  treatment  to  many  topics  of  im- 
portance in  a  discussion  of  the  latter  subject. 
In  Rae's  expressions  on  the  interest  problem 
our  author  discerns  two  different  lines  of 
thought,  the  one  connecting  interest  with  the 
influence  which  time  exerts  upon  the  estima- 
tion of  needs  and  goods,  and  the  other  with 
certain  facts  connected  with  the  technique  of 
production.  The  difficulty  of  the  problem, 
according  to  Bohm-Bawerk,  consists  in  show- 
ing how  these  two  elements  cooperate  in  the 
determination  of  the  rate  of  interest,  and  it 
is  precisely  here  that  Rae,  as  well  as  those  of 
his  successors  who  recognized  the  importance 
of  both  these  elements,  failed.  Jevons,  for 
example,  did  not  attempt  to  combine  them 
in  his  explanation,  but  adopted  an  eclectic 
method,  explaining  the  external,  technical  facts 
connected  with  the  productivity  of  capital 


TRANSLATOR'S  PREFACE  xxxiii 

after  the  manner  of  the  productivity  theory, 
and  the  psychological  facts  after  the  manner 
of  the  abstinence  theory.  Launhardt  and  Sax 
did  not  seem  to  feel  the  necessity  of  employing 
the  former  element  in  their  explanation,  but 
contented  themselves  with  the  use  of  the  im- 
perfect materials  prepared  but  left  unused 
by  Jevons.  Rae  recognized  the  importance  of 
both  elements,  but  failed  in  his  explanation 
of  how  they  cooperate  in  the  determination 
of  interest.  His  treatment  of  this  part  of  the 
subject  may  be  summarized  as  follows:  — 

The  fact  that  people  estimate  present  goods 
more  highly  than  future  goods  of  the  same 
quality  and  quantity  explains  the  fact  of  in- 
terest. The  rate  depends  upon  the  effective 
desire  for  accumulation  on  the  one  hand 
and  certain  facts  concerning  the  technique  of 
production  on  the  other.  If,  for  example,  ac- 
cumulation continues,  while  the  state  of  know- 
ledge remains  stationary,  the  rate  of  interest 
must  fall,  because  the  use  of  materials  of  poorer 
quality  increases  the  cost  of  production  and 
thus  diminishes  the  surplus  which  remains 
after  deducting  costs  from  product.  The  ten- 


xxxiv  TRANSLATOR'S   PREFACE 

dency  is  to  carry  accumulation  to  such  a  point 
that  the  surplus  returns  will  correspond  with 
the  effective  desire  for  accumulation.  That 
such  correspondence,  however,  is  frequently 
not  realized  is  explained  by  the  fact  that  at 
times  the  community  has  not  been  able  to 
work  up  the  materials  possessed  by  it  into  in- 
struments corresponding  to  the  strength  of  the 
accumulative  principle.  For  this  situation  the 
"  inventive  principle "  may  be  responsible. 
That  is,  new  discoveries  increase  the  "capac- 
ity "  of  instruments  and  raise  them  to  a  higher 
order  of  series,  thus  temporarily  at  least  making 
it  possible  for  people  to  discontinue  the  produc- 
tion of  instruments  of  the  lower  degrees  of 
capacity  even  when  the  strength  of  the  effec- 
tive desire  for  accumulation  is  great  enough  to 
warrant  their  production.  In  this  manner  Rae 
pushes  the  technical  facts  of  production  into  the 
foreground  of  his  explanation  and  the  psycho- 
logical factor  into  the  background.  The  rate 
of  interest  is  thus  usually  determined  by  the 
productivity  of  instruments,  and  only  occasion- 
ally does  it  correspond  with  the  actual  strength 
of  the  effective  desire  for  accumulation. 


TRANSLATOR'S   PREFACE  xxxv 

At  this  point  Bohm-Bawerk  calls  attention 
to  the  fact  that  Rae's  explanation  is  subject  to 
the  same  criticism  as  the  productivity  theory. 
He  confuses  physical  and  value  productivity, 
and  the  cause  of  this  confusion  seems  to  be  the 
ambiguous  use  of  the  terms  "capacity"  and 
"  returns."  In  his  formal  definitions  and  illus- 
trations of  "  capacity "  the  purely  technical 
conception  is  employed.  For  example,  the 
capacity  of  a  good  is  said  to  be  great  or  small 
according  as  it  helps  to  bring  into  existence 
many  or  few  products.  The  capacity  of  an 
instrument  can  be  increased  either  by  lengthen- 
ing its  duration  or  by  increasing  the  quantity  of 
goods  which  it  can  produce  in  a  given  period 
of  time.  He  illustrates  the  effects  of  inven- 
tions or  improvements  by  the  statement 
(p.  259)  that  with  an  improved  form  of  plough, 
people  can  plough  a  larger  piece  of  land  with 
the  same  expenditure  of  human  and  animal 
labour.  Rae  then  passes  over  to  the  concep- 
tion of  value  productivity  when  he  attempts  to 
arrange  instruments  into  series  on  the  basis  of 
the  surplus  they  yield  over  costs.  This  he 
accomplishes  by  a  comparison  of  the  labour 


xxxvi  TRANSLATOR'S   PREFACE 

expended  on  the  production  of  an  instrument 
with  the  returns  of  that  instrument,  and  as  a 
measure  of  these  two  magnitudes  he  takes  the 
value  or  the  wages  of  the  labour.  Thus  he 
compares  the  wages  of  the  labour  expended  in 
the  production  of  an  instrument  with  the  wages 
of  the  labour  for  which  the  returns  or  product 
of  the  instrument  would  exchange.  In  other 
words,  he  compares  the  value  of  the  cost 
elements  with  the  value  of  their  product,  the 
instrument,  so-called,  being  the  intermediate 
factor.  He  assumes  that  this  comparison  will 
reveal  a  surplus,  the  magnitude  of  which  as 
compared  with  the  value  of  the  instrument  de- 
termines the  series  to  which  the  latter  belongs. 
He  then  argues  that  this  surplus  is  increased 
or  decreased  directly  by  changes  in  the  physi- 
cal productivity  of  instruments.  For  example, 
improvements  or  inventions  make  it  possible 
to  secure  the  same  returns  with  less  labour  or 
greater  returns  with  the  same  labour,  and  this, 
he  argues,  will  increase  the  surplus  due  to  the 
instrument  in  question,  and  will  thus  raise  it 
to  a  higher  series.  The  returns  of  which  he 
speaks  in  the  first  part  of  the  argument  are 


TRANSLATOR'S   PREFACE  xxxvii 

concrete  goods,  but  the  surplus  referred  to  is 
a  surplus  of  value,  obtained  by  subtracting  the 
value  of  the  cost  elements  from  the  value  of 
these  concrete  goods.  What  he  proves  is  that 
inventions  increase  the  physical  productivity  of 
labour,  and  from  that  fact  he  draws  the  unwar- 
ranted conclusion  that  the  value  of  the  product 
and  the  value  of  the  labour  are  farther  apart 
than  before.  In  like  manner  he  explains  the 
fall  in  the  rate  of  interest  due  to  increasing 
accumulations.  These  increasing  accumula- 
tions, he  argues,  involve  the  use  of  materials 
of  poorer  quality  or  of  materials  more  difficult 
to  procure.  Thus  costs  are  increased.  A 
given  amount  of  labour  yields  a  smaller  return 
or  a  larger  amount  of  labour  is  required  to  pro- 
cure the  same  return.  From  this  fact  he  draws 
the  conclusion  that  the  surplus  due  to  the  in- 
strument in  question  must  decrease.  Thus 
from  a  decrease  in  the  physical  productivity  of 
an  instrument  he  argues  a  decreasing  differ- 
ence between  the  value  of  the  instrument  and 
that  of  its  product. 

Bohm-Bawerk   also   refers   to   the  fact  that 
Rae's   reasoning   is   contradicted   by  his   own 


xxxviii  TRANSLATOR'S   PREFACE 

doctrine  of  value.  According  to  the  cost  of 
production  theory,  the  value  of  the  product 
ought  to  rise  in  the  same  proportion  as  the 
costs,  and  in  that  case  no  change  in  the  sur- 
plus would  be  experienced.  Rae  also  assumes 
throughout  that  the  value  of  labour  remains 
stationary,  and  that  the  sum  of  value  repre- 
sented by  the  costs  increases  and  decreases 
only  as  the  quantity  of  labour  represented  by 
it  increases  and  decreases.  He  thus  commits 
the  fatal  error  of  assuming  that  the  forces  which 
determine  value  operate  upon  the  goods  which 
constitute  the  returns,  but  has  no  influence 
whatever  upon  those  which  constitute  costs. 

After  summarizing  the  similarities  and  the 
differences  between  Rae's  theory  and  his  own, 
Bohm-Bawerk  concludes  with  the  statement 
that  in  respect  to  one-half  of  his  doctrine, — 
that,  namely,  which  treats  of  the  difference  in 
the  valuation  of  present  and  future  goods  and 
the  importance  of  this  phenomenon  in  the  ex- 
planation of  interest,  —  Rae  deserves  the  credit 
of  originality  and  of  having  anticipated  him, 
but  regarding  the  other  half  he  declares  that 
Rae  was  a  follower  of  the  productivity  theo- 


TRANSLATOR'S   PREFACE  xxxix 

rists,  and  especially  of  his  great  contemporary, 
Thiinen. 

The  chapter  on  the  exploitation  theory  has 
been  considerably  enlarged  in  the  second  edi- 
tion by  the  addition  of  a  section  on  "  The  Doc- 
trines of  Marx  in  the  Mouths  of  his  Successors," 
and  by  the  extension  of  the  critical  portion  of 
the  section  on  Marx.  The  occasion  of  these 
additions  was  the  publication  in  1894  of  the 
third  volume  of  "  Das  Kapital,"  which  existed 
only  in  manuscript  at  the  time  of  the  publica- 
tion of  the  first  edition  and  the  contents  of 
which  were  at  that  time  unknown  to  the  gen- 
eral public. 

In  the  first  two  volumes  many  parts  of 
Marx's  theory  were  left  incomplete,  notably 
that  portion  of  the  doctrine  of  profits  and  of 
surplus  value  in  which  it  became  necessary 
to  harmonize  the  law  of  the  equalization  of 
profits  with  the  labour  theory  of  value.  Marx 
recognized  two  varieties  of  capital,  which  he 
distinguished  by  the  terms  "  variable  "  and  "  con- 
stant." Variable  capital  is  paid  to  labourers, 
and  by  means  of  their  value-creating  power 
reappears  with  a  surplus.  Constant  capital 


xl  TRANSLATOR'S   PREFACE 

reappears  likewise,  but  without  a  surplus.  It 
follows,  therefore,  that  the  rate  of  profits  should 
be  higher  where  the  proportion  of  variable 
capital  is  large,  and  lower  where  it  is  small. 
The  fact  is,  however,  that  the  rate  of  profits 
tends  toward  equality  without  reference  to 
the  composition  of  the  capital,  and  a  conse- 
quence of  this  is  that  products  do  not  exchange 
in  accordance  with  the  amounts  of  labour  neces- 
sary to  their  production. 

In  his  first  volume  Marx  recognized  the 
apparent  discrepancy  between  his  theory  of 
value  and  the  facts,  and  promised  to  harmonize 
the  two  in  a  subsequent  publication,  and  the 
manuscript  published  in  1894  contained  the 
fulfilment  of  that  promise.  Bbhm-Bawerk 
shows,  however,  that  he  completely  failed  to 
remove  this  discrepancy.  Marx's  argument  is 
that,  though  the  law  of  the  equalization  of 
profits  requires  that  the  value  of  some  goods 
should  be  too  low  and  that  of  others  too  high, 
the  excess  of  value  in  the  one  case  exactly  off- 
sets the  deficit  in  the  other,  and  that,  therefore, 
total  values  correspond  to  the  amounts  of  labour 
which  produced  them.  In  criticism  Bohm- 


TRANSLATOR'S   PREFACE  xli 

Bawerk  shows  that  this  argument  completely 
overlooks  the  problem  of  value  which  is  to 
explain  the  proportions  in  which  goods  ex- 
change for  each  other,  and  not  the  relation 
between  the  sum  of  values  and  their  labour 
costs.  Marx's  admission  in  the  third  volume, 
that  goods  actually  do  not  exchange  for  each 
other  in  proportion  to  the  amounts  of  labour 
necessary  to  their  production,  is  a  complete 
denial  of  the  doctrine  of  value  so  elaborately 
worked  out  in  the  first  volume.  It  is  impos- 
sible to  harmonize  or  to  explain  away  so  pal- 
pable a  contradiction. 

In  Bohm-Bawerk's  opinion  the  publication 
of  the  third  volume  of  "  Das  Kapital "  marks 
the  beginning  of  the  end  of  the  labour  theory 
of  value.  Some  of  Marx's  followers  of  the 
present  day  have  attempted  to  harmonize  their 
master's  contradictory  statements,  or  at  least  to 
show  that  there  is  still  a  remnant  of  truth  in 
the  venerable  theory,  but  our  author  finds  little 
difficulty  in  exposing  the  futility  of  these  at- 
tempts. The  curious  reader  who  does  not 
understand  German  may  examine  these  argu- 
ments and  Bohm-Bawerk's  criticisms  in  Miss 


xlii  TRANSLATOR'S   PREFACE 

Macdonald's  translation  entitled  "  Karl   Marx 
and  the  Close  of  his  System." 

Bohm-Bawerk's  review  of  the  literature  of 
interest  produced  during  the  fifteen  years  pre- 
ceding 1900,  is  presented  herewith  in  transla- 
tion, and  needs  no  description  or  commendation. 
It  speaks  for  itself.  It  is  the  hope  and  the 
belief  of  the  translators  that  the  English-speak- 
ing world  will  accord  to  this  little  book  the 
same  welcome  they  gave  to  the  translation  of 
the  first  edition. 

WILLIAM  A.  SCOTT. 

UNIVERSITY  OF  WISCONSIN, 
May,  1903. 


CONTENTS 

PAGE 

TRANSLATOR'S  PREFACE v 

CHAPTER 

I.     INTRODUCTION .  i 

II.    THE  AGIO  THEORY 6 

III.  THE  USE  THEORIES 14 

IV.  THE  ABSTINENCE  THEORY 17 

V.    LABOUR  THEORIES 63 

VI.    THE  PRODUCTIVITY  THEORIES      ....  90 

VII.    THE  EXPLOITATION  THEORY       .        .        .        .122 

VIII.    THE  ECLECTICS 132 

IX.  THE  PRESENT  STATE  OF  OPINION  .  .  .  140 

INDEX 149 


xliii 


RECENT  LITERATURE  ON  INTEREST 

CHAPTER   I 

INTRODUCTION 

SINCE  the  appearance  of  the  first  edition  of 
my  work  the  problem  of  interest  has  been  the 
subject  of  lively  and  varied  discussions.  The 
literature  on  this  subject  during  the  last  fifteen 
years  has  been  relatively  more  abundant  than 
during  any  previous  period  of  equal  length,  and 
while  the  strife  which  it  indicates  has  brought 
no  solution  of  the  great  problem,  there  is  per- 
ceptible on  the  literary  battle-field  a  certain  shift- 
ing among  the  contending  forces  which  seems 
to  me  to  indicate  a  more  advanced  stage  of 
the  conflict,  one  approaching  a  final  decision. 
The  struggle  is  less  desultory  than  it  was  fif- 
teen years  ago.  Though  some  new  opinions 
have  appeared,  many  of  the  older  ones  have  been 
entirely  or  almost  entirely  discarded,  and  the  bat- 
tle now  centres  about  a  few  earnestly  defended 


2  RECENT   LITERATURE  ON   INTEREST 

points  between  which  the  decision  hangs. 
And  c\cn  ^.vit'h  reference  to  these  the  deci- 
sion seems  to  me  to  be  really  nearer  than  ever 
before.  There  is  no  more  skirmishing,  no 
more  fighting  between  advanced  outposts. 
The  preliminary  actions  have  so  far  done 
their  work,  the  premises  and  consequences  of 
the  contending  theories,  the  essential  nature 
of  their  theoretical  content,  so  to  speak,  have 
been  so  clearly  revealed,  that  the  dispute  can 
scarcely  again  deviate  into  side  issues,  and 
the  pending  decision  must  strike  the  very 
core  of  the  matter. 

To  be  the  historian  of  the  present  is,  for 
well-known  reasons,  a  precarious  matter.  He 
who  himself  stands  in  the  midst  of  the  forest 
cannot  easily  obtain  a  good  view  of  it.  In 
my  case  there  are  two  special  reasons  which 
render  very  difficult  the  task  of  being  a  good 
expositor  of  the  present  condition  of  the  liter- 
ature of  interest.  The  fact  that  I  myself  am 
the  author  of  one  of  the  competing  theories 
makes  me  partial  in  spite  of  the  best  of 
intentions,  and,  in  particular,  it  is  doubly 
difficult  to  preserve  the  right  perspective  in 


INTRODUCTION  3 

estimating  the  magnitude  of  the  points  at 
issue  if  to  the  nearness  of  the  point  of  view 
be  added  the  personal  preference  of  the 
observer.  Besides,  the  present  generation  of 
political  economists  are  undoubtedly  in  the 
process  of  transforming  their  views  regarding 
the  interest  problem.  Whatever  theory  may 
finally  maintain  its  ground,  it  is  certain  that 
the  one  which  we  shall  transmit  to  the  next 
generation  as  that  of  our  times,  will  be 
essentially  different  from  that  which  we  found 
in  the  text-books  of  our  youth  and  accepted 
as  the  basis  of  our  thinking.  We  all,  even 
the  most  conservative  among  us,  have  trans- 
formed the  ideas  which  were  transmitted  to 
us.  To  review  with  an  unbiassed  historical 
eye  and  correctly  to  judge  a  literature  in 
such  a  state  of  transformation,  is  a  matter 
of  peculiar  and  exceptional  difficulty.  One  is 
confronted  with  a  mass  of  transitional  views, 
among  which  may  be  found,  and  apparently 
in  the  largest  number,  insignificant  varia- 
tions of  expiring  theories,  as  well  as  hopeful 
links  in  the  chain  of  progressive  develop- 
ment, and  it  would  require  an  absolutely 


4  RECENT   LITERATURE   ON   INTEREST 

prophetic  eye  to  decide  with  certainty  whether 
a  given  theory  is  to  be  ranged  in  the  one 
category  or  the  other. 

In  spite  of  these  difficulties,  however,  I 
should  consider  myself  guilty  of  leaving  a 
perceptible  gap  in  the  work  which  I  have 
undertaken,  if  by  these  considerations  I  should 
permit  myself  to  be  frightened  away  from  the 
task  of  attempting  to  give  to  my  readers  a 
critical  survey  of  the  contemporary  literature 
of  interest.  Generally  a  critical  history  of 
doctrine  is  written  for  the  purpose  of  illumi- 
nating the  path  of  future  investigation,  and 
it  would  evidently  on  this  account  be  in  the 
highest  degree  improper  if  one  were  to  leave 
in  wilful  darkness  that  portion  of  the  road 
most  recently  covered  and  that  point  from 
which  future  travellers  must  start.  However, 
I  cannot  proceed  to  this  part  of  my  task 
without  the  frankest  acknowledgment  of  falli- 
bility and  insufficiency. 

Regarding  the  larger  part  of  the  literature 
of  the  present  day,  I  must  limit  myself  in 
advance  to  a  summary  sketch.  As  a  rule, 
I  shall  omit  to  present  in  detail  and  to  discuss 


i 


INTRODUCTION  5 

doctrines  which  are  mere  modifications  of  a 
main  theory.  And  by  so  doing  it  is  not  my 
desire  to  indicate  that  I  regard  the  modifica- 
tion as  of  little  consequence  or  the  respective 
doctrine  as  unimportant.  I  shall  submit  to 
an  exhaustive  exposition  and  criticism  only  a 
few  of  the  most  recent  theories,  indeed,  only 
those  which  are  either  of  such  evident  pecu- 
liarity that  they  are  distinguished  by  essential 
characteristics  from  the  types  of  theories 
previously  described,  or  which,  in  case  they 
are  mere  modifications  or  combinations  of 
previous  theories,  have  been  so  clearly  formu- 
lated and  at  the  same  time  so  carefully  worked 
out  that  the  extent  of  the  modification  which 
they  involve  can  be  seen  with  perfect  clearness. 


CHAPTER   II 

THE  AGIO  THEORY 

I  HAVE  already  remarked  that  in  the  most 
recent  times  some  new  opinions  have  been 
added  to  the  old  rivals.  The  most  influential 
additions  of  this  sort  are  represented  by  those 
theories  which  explain  interest  by  a  difference 
in  value  between  present  and  future  goods. 

Remote  allusions  to  this  thought  had 
already  been  made  by  Galiani  and  Turgot. 
A  half-century  later  John  Rae  had  given  to 
it  a  very  remarkable  formulation,  in  spite  of 
which,  however,  it  was  not  his  fate  to  exert 
any  influence  upon  its  further  literary  devel- 
opment. Again,  forty  years  later,  Jevons 
worked  out  in  a  masterly  way  most  of  the 
premises  upon  which  that  theory  rests,  but 
he  neglected  to  develop  the  lines  of  thought 
which  connect  these  premises  with  the  phe- 
nomena of  interest.  In  this  respect  his  work 
is  inferior  to  that  of  his  forgotten  predecessor, 

6 


THE   AGIO   THEORY  7 

Rae,  whom  he  about  equals  in  the  develop- 
ment of  the  psychological  part  of  the  premises 
and  undoubtedly  surpasses  in  the  recognition 
of  those  premises  which  are  derived  from  the 
technique  of  production. 

In  immediate  connection  with  Jevons 
should  be  mentioned  Launhardt1  and  Emil 
Sax.2  Both  of  these  authors  excel  Jevons 
in  so  far  as  they  clearly  express  the  concept, 

—  involved,    but     not    clearly    expressed,    in 
Jevons's   work,   and    meantime   announced   in 
1884  as  the  foundation  of  my  interest  theory, 

—  that    interest    springs   from   the    difference 
in  value,  resting  upon  psychological  grounds, 
between    present    and    future    goods.3       But 

1 "  Mathematische  Begriindung  der  Volkswirtschaftlehre," 
Leipzig,  1885  (see  especially  pp.  5-7,  67  sq.,  and  129). 

2  "  Grundlegung  der  theoretischen  Staatswirtschaft,"  Vienna, 
1887  (pp.  178^.,  313^.)- 

3  "  The  rate  of  interest  demanded  rests  upon  an  estimation  of 
the  smaller  value  possessed  by  a  future  enjoyment  in  comparison 
with  an  equally  great  enjoyment  offered  in  the  present."     (Laun- 
hardt, p.  129.) 

"  The  value  of  a  production  good  is  derived  from  that  of  the 
consumption  good  which  proceeds  from  it.  Since  the  need 
which  the  production  good  indirectly  satisfies  is  a  future  rteed, 
this  derived  value  is  smaller  than  that  which  the  economic  sub- 
ject attributes  to  the  consumption  good  available  in  the  present 


8  RECENT  LITERATURE   ON   INTEREST 

these  authors  merely  formulated  this  principle 
without  carrying  it  to  its  final  consequences. 
Their  failure  to  develop  it  in  detail  prevented 
them  from  testing  whether  the  psychological 
causes  of  the  lower  estimation  of  future  goods 
are  able  to  furnish  a  sufficiently  broad  basis 
for  a  complete  explanation  of  the  phenomena 
of  interest,  or  whether  in  addition  certain 
facts  connected  with  the  technique  of  produc- 
tion, and  entirely  neglected  by  them,  must 
not  be  employed  in  the  explanation. 

The  works  of  Launhardt  and  Sax  fall  in 
the  period  between  the  appearance  of  the 
first  (1884)  and  the  second  (1889)  volumes 
of  my  published  work  upon  "  Capital  and 
Interest."  The  "  Positive  Theory  of  Capital " 
set  forth  in  the  second  volume  contains  an 

for  rendering  the  same  satisfaction,  or  what  amounts  to  the  same 
thing,  smaller  than  the  value  which  that  concrete  consumption 
good,  after  it  has  come  into  existence,  will  have  for  him  in  view 
of  the  need  which  at  that  time  exists.  The  value  of  the  future 
consumption  good  from  which  the  value  of  the  capital  is  derived 
depends  upon  the  future  need,  which  is  weaker  than  the  need  at 
present  felt.  ...  In  the  difference  of  value  between  the  pro- 
duction good  and  the  consumption  good  derived  from  it  lies  the 
so-called  l  productivity '  of  capital."  (Sax,  pp.  317  and  321 ;  cf. 
also  p.  178  sq.) 


THE  AGIO   THEORY  9 

attempt  to  derive  all  forms  of  the  interest 
phenomenon  from  the  difference  in  value 
between  present  and  future  goods,  and  to  ex- 
plain this  difference  by  means  of  the  coopera- 
tion of  a  series  of  causes,  partly  psychological 
and  partly  connected  with  the  technique  of 
production.  This  attempt  met  with  much 
opposition,  but  also  with  agreement  and  sup- 
port from  many  quarters.  Cognate  ideas  were 
expressed  at  about  the  same  time  by  American 
thinkers,  especially  by  Simon  N.  Patten,1  S.  N. 
Macvane,2  and  J.  B.  Clark,8  though  in  a  less 
exhaustive  way,  and  for  the  time  being  with- 
out any  conscious  break  with  the  trend  of 
ideas  involved  in  the  old  abstinence  theory. 

1  "The  Fundamental  Idea  of  Capital,"  in  the  Quarterly  Jour- 
nal of  Economics,  January,  1889. 

2  See  his  short  but  very  noteworthy  article  entitled  "  Analysis 
of  Cost  of  Production,"  in  the  Quarterly  Journal  of  Economics, 
July,  1887,  and  later  articles  in  the  same  periodical  for  October, 
1890,  and  January,  1892. 

8  The  extensive  series  of  articles  in  which  this  sagacious  and 
indefatigable  theorist  has  during  the  last  decade  presented  his 
investigations  on  the  subject  of  capital  and  interest  begins  with 
his  monograph,  "  Capital  and  its  Earnings,"  published  in  1888. 
Most  of  his  later  articles  may  be  found  in  the  Quarterly  Journal 
of 'Economics ;  some  also  in  the  Annals  of  the  American  Academy, 
July,  1890,  and  in  the  Yale  Review,  November,  1893. 


10          RECENT   LITERATURE   ON   INTEREST 

At  the  same  time  there  was  in  operation  the 
impulse  given  by  Jevons's  brilliant  work,  which 
has  steadily  grown  in  the  appreciation  of  the 
theorists  of  the  various  nations.  The  fact  is 
that  on  account  of  one  or  the  other  of  these 
stimulating  influences,  the  theory  of  the  differ- 
ence in  value  between  present  and  future 
goods,  —  to  use  a  short  expression,  the  agio 
theory,1  —  has  taken  root  in  the  literature  of 
all  civilized  nations,  and  has  even  acquired  a 
predominant  place  in  that  of  some  of  them. 
Especially  it  seems  to  me  that  cognate  views, 
with  this  or  that  shade  of  difference,  have 
acquired  wide  acceptance  in  English-Ameri- 
can,2 Italian,8  Dutch,4  and  Scandinavian5 
literature.6 

1  Macfarlane  ("  Value  and  Distribution,"  pp.  xxii  and  230  sq.) 
proposes  the  name  "  exchange  theory,"  because  according  to  this 
theory  interest  arises  from  an  exchange  between  present  and 
future  goods.     But  this  term  does  not  seem  to  me  to  characterize 
the  theory  sufficiently.     By  a  strange  misunderstanding,  Zaleski 
("Lehre  vom  Capital,"  Kazan,  1898)  regards  the  title  "  Positive 
Theory  of  Capital,"  which  I  gave  to  the  second  part  of  my  work 
in  order  to  contrast  it  with  the  historical  first  part,  as  a  character- 
istic attribute  of  my  theory. 

2  Besides  the  authors  included  in  the  text  there  are  others  who 
hold  more  or  less  similar  views.     For  example,  J.  Bonar  (Quar- 
terly Journal  of  Economics,  April  and  October,  1889,  and  April, 


THE  AGIO   THEORY  II 

1890);  William  Smart  ("  Introduction  to  the  Theory  of  Value," 
London,  1891,  "The  New  Theory  of  Interest,"  Economic  Journal, 
1891)  ;  F.  Y.  Edgeworth  (Economic  Journal,  June,  1892);  E.  B. 
Andrews  ("Institutes  of  Economics,"  Boston,  1889);  Lowrey 
(Annals  of  American  Academy,  March,  1 892) ;  Ely  ("  Outlines 
of  Economics,"  New  York,  1893)  ;  Carver  (Quarterly  Journal  of 
Economics,  October,  1893);  Taussig  ("Wages  and  Capital," 
New  York,  1896)  ;  Irving  Fisher  (Economic  Joiirnal,  December, 
1896,  June  and  December,  1897);  Mixter  ("A  Forerunner  of 
Bohm-Bawerk,"  Quarterly  Jottrnal  of  Economics,  January,  1897)  ; 
Macfarlane  ("Value  and  Distribution,"  Philadelphia,  1899)  ;  and 
especially  also  Hobson  ("Evolution  of  Modern  Capitalism," 
London,  1894);  and  Hadley  ("Economics,"  New  York,  1896, 
and  Annals  of  A?nerican  Academy,  November,  1893).  Giddings 
has  also  expressed  himself  as  partially  in  agreement  with  this 
idea,  but  he  believes  that  in  order  to  complete  and  extend  the 
theory,  it  is  necessary  to  make  an  addition  to  it,  in  which  he 
would  explain  the  constant  deficiency  in  the  supply  of  present 
goods  or  capital  by  the  fact  that  the  last  hours  of  labour,  per- 
formed with  ever  increasing  reluctance  and  pain,  contribute  to 
the  formation  of  capital.  This  increase  in  the  pains  of  labour  con- 
stitutes the  extra  costs  of  capital  building,  —  in  comparison  with 
the  cost  of  the  manufacture  of  goods  designed  for  immediate  con- 
sumption—  which  extra  costs  must  find  their  remuneration  in 
interest.  But  I  am  neither  able  to  convince  myself  of  the  reality 
of  all  the  assumptions  of  fact  involved  in  this  theory,  nor,  if  these 
assumptions  be  granted,  am  I  able  to  discover  their  operation  in 
the  process  by  which  interest  is  produced.  See,  besides,  the 
exhaustive  discussion  in  the  Quarterly  Journal  of  Economics  from 
July,  1889,  to  April,  1891,  in  which,  besides  Giddings  and  myself, 
Bonar,  David  J.  Green,  and  H.  Bilgram  also  took  part. 

3  Ricca-Salerno  ("Teorie  del  Valore,"  Rome,  1894),  Monte- 
martini  ("II  Risparmio  dell1  Economia  pura,"  Milan,  1896)  ;  Cro- 
cini  ("  Di  alcune  questioni  relative  all'  utilita  finale,"  Turin,  1896)  ; 
Graziani  ("  Studi  sulla  teoria  delP  interesse,"  Turin,  1898)  ;  further 


12  RECENT  LITERATURE   ON    INTEREST 

in  essentials  perhaps,  Barone  ("  Sopra  un  libro  di  Wicksell,"  Gior- 
nale  degli  Economist^  November,  1895,  and  "Studi  sulla  distri- 
butione  "  in  the  same  journal  for  February  and  March,  1896)  ;  and 
partly  at  least,  Benini  ("  II  valore  e  la  sua  attribuzione  ai  beni  stru- 
mentali,"  Ban,  1893). 

4  Under  this  head  must  be  mentioned  before  all  others  N.  G. 
Pierson's  classical  work,  "  Leerboek  der  Staatshuishoudkunde " 
(2d  ed.,  Harlem,  1896,  and  an  older  article  in  De  Economist, 
March,  1899,  p.  193  ^-)- 

5  This  subject  has  been  most  exhaustively  treated  by  Kunt 
Wicksell  ("  Ueber  Wert,  Capital  und  Rent,"  Jena,  1893,  "  Finanz- 
theoretische  Untersuchungen,"  Jena,  1896).     Dr.  Wicksell  was 
kind  enough  to  supplement  my  insufficient  knowledge  of  Scandi- 
navian literature  by  some  private  communications,  in  which  he 
mentions  as  representatives  of  cognate  views  the  following  authors  : 
in  Denmark,  Professors  Westergaard    and    Folbe-Hansen ;    in 
Sweden,  Count  Hamilton,  David  Davidson,  and  John  Leffler; 
in  Norway,  Professors  Aschehoug  and  Morgenstierne,  Dr.  Oskar 
Jaeger  and  Dr.  Einarsen. 

6  Among  the  original  German  works  in  which  similar  ideas 
are  expressed,  I  wish  to  make  special  mention  of  that  of  Eifertz 
("Arbeit  und  Boden,"  Berlin,  1889),  which  appeared  almost  con- 
temporaneously with  my  "Positive  Theory,"  and  the  profound 
work  of  the  Swiss  author,  George  Sulzer  ("  Die  wirtschaftlichen 
Grundgesetze  in  der  Gegenwartsphase  ihrer  Entwicklung,"  Zurich, 
1895).    Effertz  expressed  in  an  original  way  the  thought  that 
interest  owes  its  existence  to  a  difference  of  time,  and  that  the 
"  age  "  ("  alter  ")  of  labour  and  of  land  is  an  element  of  exchange 
value,  and  that  interest  is  "  the  payment  for  the  age  quality  of 
labour  and  land  "  (pp.  190  sq.,  198  sg.,  and  278).    The  necessity  of 
the  additional  payment  for  the  "  age  "  of  the  elements  of  produc- 
tion is  remotely,  although  perhaps  inadequately,  explained  by  the 
fact  that  old  labour  and  old  land  are  rarer  than  present  labour  and 
present  land  (pp.  190,  195, 198 ;  cf.  also  in  addition,  pp.  218, 221, 
354).    The  fact  that  the  author  on  principle  avoids  literary 


THE   AGIO    THEORY  13 

references  makes  it  impossible  to  know  whether  and  to  what 
extent  the  work  of  Effertz,  which  appeared  in  1889,  was  influ- 
enced by  several  previous  discussions  of  the  same  fundamental 
thought.  Sulzer's  treatment  of  the  subject  seems  to  me  in  gen- 
eral to  move  upon  a  middle  line  between  that  of  Jevons  and  my 
own.  On  the  position  occupied  by  Adolf  Wagner  at  the 
present  time,  see  Chapter  V. 


CHAPTER    III 

THE  USE  THEORIES 

OF  the  numerous  opinions  which  have  con- 
tended for  mastery  upon  the  literary  battle- 
fields of  the  past,  some  have  received  no 
reenforcement  whatever  in  recent  times,  and 
others  have  had  only  an  occasional  champion. 
Of  the  first  kind,  for  the  most  part,  has  been 
the  fate  of  those  groups  of  theories  which  have 
either  reduced  the  problem  of  interest  to  too 
great  simplicity,  or  have  subjected  it  to  a  re- 
finement of  treatment  which  is  fatal.  For  the 
first  reason  the  colourless  theories,1  the  naive 
productivity  theory,  the  fructification  theory 

1 1  am  almost  inclined  to  class  under  this  head  the  interest 
theory  of  Lehr  ("  Grundbegriffe  und  Grundlagen  der  Volkswirt- 
schaft,"  Leipzig,  1893,  Ft.  VII,  Ch.  6)  ;  at  least,  I  am  unable  to 
discover  any  characteristic  point  in  his  rather  voluminous  disqui- 
sition upon  this  subject.  He  refuses  his  adherence  to  most  of 
the  theories  ordinarily  held,  but  on  his  part  presents  only  such 
statements  as  in  substance  constitute  either  an  appeal  to  the 
reality,  propriety,  justice,  and  equity  of  certain  phenomena  or 
echo  certain  universal  motives  (such  as  the  motive  referred  to  by 
Adam  Smith,  that  without  the  prospect  of  interest,  capital  would 


THE  USE   THEORIES  .  15 

of  Turgot,  and  the  theory  of  Henry  George, 
have  remained  without  new  adherents ;  and  for 
the  second  reason  theories  of  the  type  of 
Schellwien's. 

To  the  group  which  has  only  received  occa- 
sional reenforcement  belongs  the  interesting 
use  theory.  From  its  most  distinguished  rep- 
resentative, Karl  Menger,  nothing  new  has 
appeared ;  though  in  his  highly  esteemed  mono- 
graph on  "  The  Theory  of  Capital " *  this 
author  has  subjected  the  concept  of  capital 
to  a  thoroughgoing  and  fruitful  investiga- 
tion, which,  however,  does  not  extend  to  the 
contested  question  of  interest.  Walras,  who 
had  previously  expounded  the  use  theory  in  a 
form  which  reminds  us  of  J.  B.  Say,  still  holds 
to  this  theory.2 

Among  recent  works  which  adhere   clearly 

not  be  accumulated  for  purposes  of  production  or  loan,  p.  332), 
but  in  my  opinion  constitute  no  real  explanation  of  the  phenome- 
non of  interest. 

1  Conrad's  Jahrbucher,  new  series,  Vol.  XXII  (1888). 

2  "Elements   d'Economie  politique  pure,"  ist  ed.,  Lausanne, 
1874,  2d  ed.,  1889.     Walras  considers  interest  as  the  payment 
for  the  productive  service  ("  service  producteur  ")  of  capital,  which 
is  a  distinct  immaterial  good  (see,  for  example,  pp.  201,  211,  and 
XIII  of  the  2d  ed.).     In  essentials  Pareto  (Cours  d'Economie 


16          RECENT  LITERATURE   ON   INTEREST 

and  firmly  to  the  standpoint  of  the  use  theory 
(occasional  allusions  to  this  theory  are  frequent, 
especially  among  eclectic  writers  *),  only  that 
of  Ladislas  Zaleski  in  the  Russian  language 
on  "  The  Doctrine  of  Capital " 2  is  known  to 
me.  Since  for  linguistic  reasons  my  know- 
ledge of  this  work  is  confined  to  a  few  extracts 
placed  at  my  disposal,  I  can  only  make  the 
statement  that  Zaleski  expresses  his  adherence 
to  the  use  theory  and  attempts  to  base  it  upon 
the  doctrine  of  natural  science  regarding  "  the 
unity  of  matter  and  the  conservation  of  en- 
ergy." How  far  removed  he  is  in  this  new 
departure  from  the  use  theory  of  Menger,  and 
to  what  extent  he  approaches  the  intricate  prod- 
uctivity theory,  I  am  unable  to  say. 

politique,  Vol.  I,  p.  40  sq.}  adheres  to  the  conception  of  Walras, 
but  not  without  occasional  allusions  to  the  difference  in  value 
between  present  and  future  goods  (see,  for  example,  p.  50). 

1  For  example,  Conrad  ("  Grundriss  zum  Studium  der  polit- 
ischen  Okonomie,"  Jena,  1896,  Pt.  I,  §  67)  ;  Dietzel,  in  an  article 
quoted  farther  on  (G'ottinger  gelehrten  Anzeigen) ;  Diehl 
("Proudhon,  seine  Lehre  und  sein  Leben,"  Jena,  1890,  Pt.  II, 
p.  204)  ;  M.  Block  ("  Progres  de  la  science  Economique  depuis 
Adam  Smith,"  Paris,  1890,  Pt.  II,  Ch.  XXIX)  ;  Ch.  Gide  («  Prin- 
cipes  d'Economie  Politique,"  5th  ed.,  Paris,  1896,  p.  451);  and 
several  others. 

3  Kazan,  1898. 


CHAPTER   IV 

THE  ABSTINENCE  THEORY 

DURING  the  last  fifteen  years  the  abstinence 
theory  has  been  the  subject  of  lively,  I  may 
almost  say  unexpectedly  lively,  theoretical  dis- 
cussion. To  begin  with  some  details,  it  has  re- 
ceived support  of  an  interesting  kind  from  the 
fact  that  it  has  been  vigorously  defended  by 
some  writers  against  an  objection  which  has 
played  a  very  noisy  part  in  the  polemic  directed 
against  it  by  socialistic  agitators.  The  objec- 
tion is  that  the  greatest  capitalists  have  occasion 
to  practise  the  least  abstinence,  and  that  there- 
fore there  is  an  evident  lack  of  harmony  be- 
tween the  magnitude  of  the  causes  which  are 
supposed  to  be  in  operation,  that  is,  the  absti- 
nence practised,  and  their  supposed  effect,  the 
amount  of  interest  obtained. 

By  the  application  of  a  principle  common  to 
the  Ricardian  and  the  marginal  utility  theories, 
c  17 


1 8          RECENT   LITERATURE   ON   INTEREST 

it  has  been  shown  that  this  lack  of  harmony 
cannot  be  regarded  as  a  conclusive  argument 
against  the  truth  of  the  abstinence  theory, 
since  the  market  price  of  products  by  which 
the  sacrifice  involved  in  their  production  is  re- 
munerated tends  to  equal  the  greatest  of  the 
various  sacrifices  required.  On  this  account 
it  is  not  remarkable  that  the  same  rate  of  in- 
terest which  is  adequate  to  reward  the  greatest 
abstinence  undergone  may  give  an  excessive 
remuneration  to  those  persons  with  whom  the 
accumulation  and  maintenance  of  capital  in- 
volves a  relatively  small  sacrifice  of  abstinence.1 
But  this  argument  answers  only  one  of  the 
most  superficial  objections  to  the  abstinence 
theory,  and  does  not  touch  the  more  funda- 


1  In  his  apology  for  the  abstinence  theory,  Macfarlane  ("  Value 
and  Distribution,"  Philadelphia,  1899,  pp.  175-177)  lays  the 
strongest  emphasis  upon  this  line  of  thought.  Substantially  in 
agreement  with  him  are  Loria  ("  La  Rendita  Fondiaria,"  Milan, 
1880,  p.  619  sg.),  and  Marshall  with  his  theory  of  "saver's  sur- 
plus" ("Principles,"  3d  ed.,  London,  1895,  p.  606);  see  further 
Carver,  Barone,  and  indeed  in  general  all  investigators  who 
recognize  the  marginal  utility  theory  of  value  and  who  at  the 
same  time  are  inclined  to  adhere  to  the  abstinence  theory; 
see  also  p.  277  sq.  of  Smart's  translation  of  "Capital  and 
Interest." 


THE   ABSTINENCE   THEORY  19 

mental  one,  based  on  logical  grounds,  upon 
which  I  have  constructed  my  criticism  of  it.1 
A  significant  change  in  terminology  has 
been  suggested  by  Macvane,  who  proposes  to 
substitute  for  the  expression  "  abstinence," 
which  has  been  the  occasion  of  so  much  op- 
position, the  weaker  but  more  suitable  term 
"  waiting." 2  This  suggestion  involves  a  cer- 
tain approach  to  the  standpoint  of  that  theory 
which  in  the  explanation  of  interest  lays  chief 
stress  upon  the  influence  of  the  element  of 
time  upon  the  difference  in  value  between 
present  and  future  enjoyments  and  goods,  and 
it  is  a  significant  fact  that  not  a  few  of  the 
most  recent  representatives  of  the  abstinence 
theory  regard  this  and  the  agio  theory  as  sub- 
stantially identical.3  But  there  is  a  real  ob- 

1  A  remark  of  Macfarlane's  (p.  179)  bearing  upon  my  objec- 
tion does  not  appear  to  me  to  strike  the  heart  of  the  matter,  but 
to  consist  of  a  mere  counter-proposition. 

2  "  Analysis  of  Cost  of  Production  "  ( Quarterly  Journal  of 
Economics,  July,  1887).     See  also  above,  p.  9. 

3  For  example,  Macfarlane  is  of  the  opinion  that  the  "  ex- 
change theory,"  as  he  calls  it  (see  also  above,  p.  10,  note  i),  of 
the  essential  features  of  which  he  approves,  is  only  an  improved 
and  developed  form  of  the  theory  of  Bohm-Bawerk  ("  the  theory 
here  proposed  is  after  all  but  an  extension  of  Bohm-Bawerk's 


20    RECENT  LITERATURE  ON  INTEREST 

stacle  in  the  way  of  the  amalgamation  of  these 
two  theories,  namely,  that  to  the  "waiting," 
which  Macvane  and  his  followers  suggest  as 
a  milder  term  than  abstinence,  must  be  as- 
signed the  position  of  an  independent  sacri- 
fice which  must  be  paid  for  in  addition  to 
that  of  labour. 

The  inclination  of  the  abstinence  theorists, 
which  was  noticeable  in  previous  periods,  to 
introduce  in  an  eclectic  way  into  their  dis- 
cussions of  the  interest  problem  propositions 
which  belong  to  other  types  of  theories,  is 
also  perceptible  in  the  most  recent  times. 
Similar  to  the  incorporation  of  elements  of  the 
agio  theory,  which  has  just  been  described,  is 
another  combination  with  elements  of  the  exploi- 
tation theory,1  for  which  Loria  is  responsible. 

analysis."  "  Value  and  Distribution,"  p.  231).  For  this  improved 
form  he  also  suggests  the  improved  title  "  normal  value  theory." 
Carver  holds  a  similar  opinion  regarding  the  relation  between  the 
two  theories  (see  below),  and  perhaps  also  Professor  Marshall. 

1 1  do  not  believe  that  I  am  in  error  in  assigning  the  ideas  of 
Loria,  which  in  all  respects  are  not  perfectly  clear  to  me,  in  the 
main  to  the  abstinence  theory.  At  least  the  clearest  passages  in 
his  older  works  ("Rendita  Fondiaria,"  p.  610  sq.,  and  "Analisi 
della  Proprietk  Capitalista,"  Turin,  1889)  point  in  this  direction, 
and  in  agreement  therewith  is  the  idea  expressed  in  the  most 
recent  comprehensive  work  of  the  author  ("La  Costituzione 


THE   ABSTINENCE   THEORY  21 

Out  of  this  group  of  theories,  two  must  be 
selected  for  special  treatment,  one  because  it 
is  a  model  exposition  of  a  completely  devel- 
oped, up-to-date  abstinence  theory,  backed  by 
the  authority  of  one  of  the  most  distinguished 
scholars.  Endowed  with  all  the  gifts  essential 
to  an  investigator  and  expositor,  Alfred  Mar- 
shall has  furnished  us  a  complete  explanation 
of  interest  comprehending  all  the  facts  which 
have  a  bearing  upon  the  question.  The 

economica  odierna,"  Turin,  1899),  namely,  that  the  abstinence  of 
capitalists  must  be  regarded  as  an  element  which  plays  an  essen- 
tial rdle  in  the  distribution  of  the  product  (see,  for  example,  pp. 
36  sq.  and  75) .  In  the  same  direction  also  point  the  expressions 
of  the  author  regarding  the  motive  and  limits  of  accumulation 
(for  example,  "  Costituzione,"  pp.  73  sq.  and  98  sq.}.  Still,  in  the 
works  of  Loria  may  be  found  also  expressions  which  warrant  one 
in  concluding  that  in  this  author's  opinion  the  fact  of  exploitation 
has  an  important  part  in  the  phenomenon  of  interest,  at  least  in  its 
present  form  and  extent  (for  example,  "  Costituzione,"  pp.  34  sq. 
and  821).  A  well-known  specialty  of  Loria's  is  the  doctrine  that 
to  the  appropriation  of  land  is  to  be  ascribed  a  decisive  and  far- 
reaching  influence  upon  the  formation  and  magnitude  of  the  prof- 
its of  capital.  I  regard  this  opinion  as  entirely  wrong  (a  more 
complete  exposition  and  criticism  of  this  may  be  found  in  Grazi- 
ani's  brilliant  "Studi  sulla  teoria  dell' interesse,"  Turin,  1898, 
pp.  46-50),  and  I  cannot  suppress  the  remark  that  to  me  the  theo- 
retical speculations  of  Loria  appear  much  more  fantastic  than 
exact,  and  seem  to  me  frequently  to  be  permeated  by  very  super- 
ficial misunderstandings  of  the  opinions  of  others. 


22          RECENT   LITERATURE   ON   INTEREST 

second  of  these  theories  deserves  attention  as 
an  original  attempt  to  give  an  entirely  new 
meaning  to  the  term  "  sacrifice  of  abstinence." 
Professor  Marshall  recognizes  the  funda- 
mental causes  of  interest  in  two  circumstances 
which  he  describes  by  the  terms,  the  "  pro- 
spectiveness  "  and  the  "productiveness"  of  capi- 
tal. The  "  prospectiveness  "  of  capital  consists 
in  the  fact  that  it  yields  its  uses  (niitzen)  only 
in  the  future.  In  order  to  accumulate  capital, 
people  must  act  prospectively ;  they  must  wait 
and  save;  they  must  sacrifice  the  present  to 
the  future.1  "  Productiveness  "  is  based  upon 
the  productive  advantages  which  the  assistance 
of  capital  furnishes.  It  makes  production 
easier  and  more  abundant.2  The  "  produc- 

l" Principles  of  Economics,"  3d  ed.,  pp.  142,  662.  The  fourth 
edition,  which  has  appeared  in  the  meantime,  is  in  all  essentials 
in  agreement  with  the  third. 

2  pp.  142,  622,  751.  In  this,  and  in  general  in  all  passages 
in  which  Professor  Marshall  explains  "  productiveness,"  he  very 
properly  has  in  mind  a  technical  productivity  which  shows  itself 
in  an  addition  to  the  product  which  could  be  obtained  with  the 
same  expenditure  of  original  productive  powers.  He  is,  there- 
fore, in  entire  agreement  with  the  conception  of  physical  or 
technical  productivity  which  I  have  employed  in  my  theory  of 
interest.  It  appears  that  Professor  Marshall  is  also  in  agreement 
with  me  in  that  he  regards  capitalistic  production  as  production 


THE   ABSTINENCE  THEORY  23 

tivity  "  of  capital  makes  it  an  object  of  demand, 
but  on  account  of  the  sacrifice  connected  with 
its  productiveness,  the  supply  is  kept  at  so  low 
a  point  that  the  use  of  capital  brings  a  price 
and  becomes  a  source  of  profit.1 

Further  particulars  regarding  this  proposi- 
tion result  from  the  universal  law  of  exchange, 
of  which  Marshall  regards  interest  as  merely 
a  special  case.  According  to  that  universal 
law,  the  "  normal  "  value  of  commodities  tends 
constantly  to  adjust  itself  to  that  level  at  which 
demand  is  in  equilibrium  with  the  cost  of  pro- 
duction. Marshall  lays  special  emphasis  upon 
the  coordinate  position  of  these  two  factors 
which  mutually  influence  each  other.  The 
real  costs  of  production  are  made  up  of  the 
totality  of  exertions  and  sacrifices  which  must 
be  undergone  in  the  production  of  goods. 
Besides  labour  these  include  also  the  sacrifice 
of  waiting  or  of  the  postponement  of  enjoy- 
ment which  is  inseparably  connected  with 
the  accumulation  and  employment  of  capital.2 

by  roundabout  methods  (cf.  "  Principles,"  p.  612,  and  also  the 
note  on  p.  664,  which  indicates  a  dissenting  view). 

1  p.  662.  2  pp.  216,  315. 


24          RECENT   LITERATURE   ON   INTEREST 

The  term  "  abstinence,"  which  has  been  widely 
used  since  the  days  of  the  older  economists, 
Marshall  regards  as  less  suitable  than  waiting, 
and  as  the  fruitful  source  of  misunderstandings, 
since  the  largest  accumulations  of  capital  are 
made  by  very  rich  people  who  experience  no 
abstinence  in  the  sense  of  privation.  It  would, 
therefore,  be  more  correct  if,  following  Mac- 
vane's  example,  we  should  designate  the  con- 
tent of  the  sacrifice  under  consideration  as  a 
mere  postponement  of  enjoyment.  This,  how- 
ever, constitutes  a  real  sacrifice  which  must 
be  reckoned  separately,  and  in  addition  to  that 
of  labour  (p.  668). 

Like  the  sacrifice  of  labour  this  one  must 
find  its  compensation  in  the  average  price  of 
commodities  according  to  their  marginal  rate 
(p.  607);  that  is,  the  payment  must  be  large 
enough  adequately  to  remunerate  even  the 
most  unpleasant  and  the  most  repulsive  part 
of  the  sacrifice  necessarily  put  forth  in  the 
production  of  the  necessary  supply  (p.  217). 
This  payment  is  interest,  and  is,  therefore, 
fittingly  described  as  the  reward  of  the  sacri- 
fice involved  in  waiting  (p.  314).  To  be  sure, 


THE   ABSTINENCE  THEORY  25 

many  people  would  save  without  such  a  re- 
ward, just  as  many  people  would  work  without 
any  wage.  Therefore,  a  considerable  capital 
would  be  accumulated,  even  with  a  lower 
interest  rate  than  that  which  controls  the 
market.  From  this  it  follows  that  on  account 
of  the  general  principle  that  the  price  must 
adequately  remunerate  the  greatest  sacrifice 
involved  in  the  production  of  the  supply,  the 
savers  of  this  capital  receive  a  remuneration 
in  excess  of  the  lesser  sacrifice  which  they 
undergo,  a  remuneration  which  Marshall  desig- 
nates as  "  saver's  "  or  "  waiter's  surplus."  But 
since  few  people  would  make  any  considerable 
accumulations  of  capital  without  the  remunera- 
tion involved  in  interest,  it  is  likewise  proper 
to  explain  interest  as  the  "  reward  of  waiting  " 
(p.  314).  In  reply  to  the  socialists  who  main- 
tain that  the  value  of  goods  depends  simply 
upon  the  quantity  of  labour  expended  in  their 
production,  Marshall  maintains  with  emphasis 
that  the  view  of  the  socialists  would  be  correct 
only  on  condition  that  the  service  rendered  by 
capital  be  offered  as  a  free  good  without  sacri- 
fice, but  that  it  is  incorrect  in  case  the  post- 


26          RECENT  LITERATURE  ON   INTEREST 

ponement  of  gratification  involves  in  general 
a  sacrifice  on  the  part  of  him  who  postpones 
(p.  668). 

I  do  not  think  I  am  wrong  in  designating 
the  view  held  by  Marshall  as  in  essentials  a 
cautiously  formulated  abstinence  theory  with 
an  improved  terminology.  In  its  fundament- 
als his  doctrine  is  in  complete  agreement  with 
that  of  Senior.  The  formation  of  capital 
demands  on  the  part  of  capitalists  a  real 
sacrifice  which  consists  in  the  postponement 
of  enjoyment  and  forms  an  independent  ele- 
ment in  the  cost  of  production  side  by  side 
with  labour.  For  this  an  independent  payment 
must  be  found  in  the  price  of  goods  after  the 
manner  and  according  to  the  laws  (to  be  sure, 
more  carefully  formulated  by  Marshall)  by 
which  in  general  costs  influence  the  price  of 
goods.1  Under  these  circumstances  it  is  evi- 
dent that  my  view  of  Professor  Marshall's 
interest  theory  cannot  differ  much  from  that 
which  I  expressed  regarding  the  abstinence 
theory  in  general  in  my  book  on  "  Capital  and 

1  Cf.  the  exposition  of  Senior's  theory  to  be  found  in  my 
"Capital  and  Interest,"  Smart's  translation,  p.  271  sq. 


THE   ABSTINENCE   THEORY  27 

Interest."  Though  I  am  in  full  agreement 
with  him  on  the  point  that  the  "  prospective- 
ness"  as  well  as  the  "productiveness"  of 
capital  have  something  to  do  with  the  expla- 
nation of  interest,  I  think  that  the  explanation 
by  which  he  and  other  abstinence  theorists 
connect  these  phenomena  with  interest,  is 
presented  in  a  form  which  is  not  in  harmony 
with  the  facts  and  which  is  in  unavoidable 
conflict  with  the  laws  of  thought. 

In  the  first  place,  I  regard  as  incorrect  the 
contention  that  in  the  act  of  postponement 
which  is  involved  in  the  employment  of  labour 
for  the  acquisition  of  a  pleasure  to  be  experi- 
enced at  a  remote  period  of  time,  we  must 
recognize  a  separate  sacrifice  to  be  reckoned 
independent  of  and  in  addition  to  that  of  labour. 
The  grounds 1  for  this  opinion  I  have  already 
presented  in  an  exhaustive  manner.  However, 
if  Professor  Marshall,  well  acquainted  with 
them  as  he  is,  still  holds  fast  to  his  doctrine, 
which  is  in  essentials  identical  with  the  absti- 
nence theory,  they  do  not  appear  to  have 
been  sufficiently  convincing.  I  will,  therefore, 

1  Smart's  translation,  Bk.  IV. 


28          RECENT   LITERATURE   ON    INTEREST 

endeavour  to  support  them  by  some  further 
explanations,  and  for  this  a  welcome  oppor- 
tunity is  presented  to  me  by  some  remarks 
which  may  be  found  in  Professor  Marshall's 
exposition  of  his  theory. 

Like  Jevons,1  Marshall  has  included  in  his 
theory  some  psychological  elements  regarding 
the  estimation  of  future  pains  and  pleasures. 
Human  nature  is  actually  so  formed  that  most 
men  do  not  esteem  a  future  pleasure,  even 
though  its  acquisition  is  absolutely  certain,  so 
highly  as  a  present  pleasure  of  the  same  sort, 
but  they  discount  it  or  make  a  deduction  from 
it,  the  magnitude  of  which  varies  with  differ- 
ent people  according  to  the  varying  degrees  of 
their  patience  and  self-control.2  The  present 

1  See  Smart's  translation,  p.  403  sq. 

2  "Principles,"  pp.  195-197,  794,  et passim.     In  this  connec- 
tion Marshall  distinguishes  as  clearly  as  is  necessary  the  under- 
estimation of  future  pleasures  from  other  differences  in  valuation, 
which  may  proceed  from  a  difference  in  time,  but  arise  from 
another  source.     Such,  on  the  one  hand,  are  the  lower  estimates 
of  future  pleasures  and  goods  which  spring  from  the  insecurity  of 
their  acquisition,  and,  on  the  other  hand,  differences  in  valuation 
which  arise  from  the  feet  that  by  a  change  in  other  circumstances 
the  character  or  the  magnitude  of  the  future  pleasure  is  itself 
changed.     For  example,  by  a  prospective  change  in  the  capacity 


THE  ABSTINENCE  THEORY  29 

value  of  future  pleasures,  and,  therefore,  also 
the  present  marginal  utility  of  a  distant  source 
of  pleasure,  are,  therefore,  smaller  than  the  value 
of  a  like  present  pleasure  or  even  than  the 
value  of  the  same  future  pleasure  at  the  time 
when  it  actually  appears.  If,  for  example, 
according  to  his  temperament,  some  one  is 
accustomed  to  discount  future  pleasures  at  the 
rate  of  ten  per  cent,  he  will  to-day  esteem  at 
ten  the  present  worth  of  a  pleasure  which  is 
still  one  year  distant,  and  which  will  then  have, 
roughly  estimated,1  an  actual  value  of  eleven. 
From  numerous  remarks  of  Marshall,  it  ap- 
pears that  the  psychological  fact  that  the  great 
mass  of  mankind  gives  to  present  satisfactions 
the  preference  over  future  is  precisely  the  one 
,'  upon  which  he  founds  his  claim  that  waiting 
involves  a  sacrifice.2  That  in  general  we  give 


for  enjoyment  (an  Alpine  tour  at  an  advanced  age),  or  by  a 
change  in  the  abundance  of  the  supply  which  exerts  an  influence 
upon  a  final  utility  (eggs  which  are  saved  for  the  winter) . 

1  That  is,  with  the  omission  of  compound  interest.     Marshall 
himself  develops  for  this  an  accurate  algebraic  formula  in  note  5 
of  the  appendix  to  his  "  Principles." 

2  PP-  3J3  S3">  429?  n*  r?  662,  663,  n.  i,  and  668 ;  indirectly  also, 
p.  794,  n.  5,  in  so  far  as  interest,  which  elsewhere  he  explains  as 


30    RECENT  LITERATURE  ON  INTEREST 

present  pleasures  the  preference  over  equally 
great  future  ones,  and  that  in  general  we  feel 
that  waiting  for  a  future  enjoyment  is  a  sacri- 
fice which  increases  the  expense  of  acquisition, 
are  in  Marshall's  doctrine  only  two  different 
methods  of  expression  for  one  and  the  same 
psychological  fact.  As  a  matter  of  fact,  how- 
ever, they  are  not  only  different  modes  of 
expression,  but  different  modes  of  conception, 
and,  indeed,  —  a  fact  which  is  of  interest  for 
our  purpose,  —  two  discordant  and  incompat- 
ible modes  of  conception,  of  which  the  one  is 
right  and  the  other  wrong,  and  which  it  is 
impossible  to  hold  at  the  same  time,  and  side 
by  side  with  each  other.  The  fact  of  the 
matter  is  as  follows:  — 

It  is  a  common  experience,  doubted  by  no 
one,  that  the  psychological  phenomenon  whose 
real  meaning  is  now  in  question  reveals  itself 
in  the  fact,  among  others,  that  for  gratifications 
equal  in  all  respects  except  in  their  remoteness 
from  us  in  time  we  are  inclined  to  undergo  un- 
equally great  sacrifices  of  labour  or  money.  For 

"the  reward  of  waiting,"  is  brought  into  connection  with  the 
"  discounting  "  of  future  pleasures. 


THE   ABSTINENCE   THEORY  31 

example,  if  the  amount  of  the  gratification  be 
ten,  we  will  be  inclined  to  devote  to  its  acquisi- 
tion a  labour  sacrifice  up  to  the  amount  ten  or 
an  equivalent  sacrifice  in  money,  say  up  to  ten 
florins,  if  this  gratification  be  attainable  at 
the  moment.  If,  on  the  other  hand,  the  same 
gratification  be  removed  from  us  one  year, 
and  if  the  psychological  fact  in  our  special  case 
acts  with  a  force  corresponding  to  a  discount 
rate  of  ten  per  cent,  we  will  be  inclined  to  ex- 
pend upon  its  acquisition  a  present  amount  of 
labour  of,  at  the  most,  something  more  than 
nine  (accurately  9.09)  or  a  money  sacrifice  of, 
in  the  aggregate,  something  more  than  nine 
florins  (9  fl.  9  kr.).  If  the  same  gratification 
stood  five  years  distant,  our  willingness  to  ac- 
quire the  same  through  a  present  sacrifice  of 
labour  or  money  would  find  its  limits  in  about 
six  units  (accurately  6.21)  of  labour-pain  or 
about  6  fl.  21  kr.  of  money.1 

This  fact,  regarding  the  reality  of  which,  as 
I  have  already  said,  there  is  no  difference  of 

1  For  simplicity's  sake,  in  this  and  the  following  cases  I 
assume  that  the  entire  sacrifice  of  labour  or  money  is  made  at 
once ;  that  is,  at  one,  and  that  the  present,  point  of  time. 


32          RECENT   LITERATURE   ON   INTEREST 

opinion  between  Marshall  and  myself,1  admits 
of  two  explanations.  One  is  that  the  distance 
of  the  gratification  from  us  in  time  diminishes, 
in  our  eyes,  its  magnitude.  Because  it  is  future, 
we  place  a  lower  estimate  upon  a  utility  than 
we  would  if  it  were  present.  It  is  this  explana- 
tion which  finds  expression  in  the  remarks  of 
Marshall  mentioned  above  regarding  the  esti- 
mation of  future  pleasures.  The  present  value 
of  a  future  pleasure  is  less  than  ten ;  when  re- 
moved from  us  one  year  it  is  only  about  nine, 
when  removed  from  us  five  years,  only  about 
six ;  and  because  the  gratification  is  worth  no 
more  to  us  than  nine  and  six  respectively,  we 
are  unwilling,  for  its  acquisition,  to  submit  to 
any  greater  sacrifice  than  is  indicated  by  the 
figures  9  and  6, 

It  is  now  evident  that,  according  to  this  con- 
ception, the  figures  9  and  6  must  indicate  and 
limit  not  merely  the  magnitude  of  a  part  of 

1  Marshall  illustrates  this,  for  example,  in  the  case  of  the 
building  of  a  house,  the  utility  of  which  when  finished  must  cover 
the  efforts  required  for  building  in  addition  to  an  amount,  in- 
creasing in  geometrical  proportions  (a  sort  of  compound  interest) 
for  the  period  which  would  elapse  between  each  effort  and  the 
time  when  the  house  would  be  ready  for  use  (p.  429). 


THE   ABSTINENCE  THEORY  33 

the  sacrifice  of  labour  and  money,  but  the  mag- 
nitude of  the  whole  sacrifice  which  we  are  in- 
clined to  take  upon  ourselves  for  the  acquisition 
of  a  future  enjoyment  In  other  words,  accord- 
ing to  this  explanation  there  is  no  room  for  a 
sacrifice  of  "  waiting "  in  addition  to  that  of 
labour  or  money,  for  it  is  evident  that  it  would 
be  opposed  to  all  the  principles  of  economic 
action  that  for  a  pleasure  which  we  esteemed 
at  only  9  or  6  we  should  be  willing  to  undergo 
an  amount  of  sacrifice  consisting  of  labour  and 
waiting,  or  of  money  and  waiting,  in  excess  of 
the  value  of  the  gratification  itself ;  for  example, 
an  amount  equal  to  ten. 

The  second  conceivable  explanation  leads  to 
the  same  result.  We  met  this  one  in  the  ex- 
pressions of  Marshall  regarding  the  existence 
of  a  sacrifice  of  waiting  which  must  be  sepa- 
rately reckoned  in  addition  to  and  by  the  side 
of  that  of  labour.  In  this  instance  the  facts  of 
the  case  are  explained  in  the  following  manner : 
The  prospect  of  the  future  gratification  which 
after  one  or  five  years  shall  have  a  value  of  ten 
causes  us  to  take  upon  ourselves  an  amount  of 
sacrifice  consisting  of  labour  and  waiting,  which, 


34    RECENT  LITERATURE  ON  INTEREST 

in  view  of  the  degree  of  painfulness  and  the 
supposed  continuance  of  the  waiting,  is  esti- 
mated at  ten. 

It  is  again  evident,  I  believe,  that  this  ex- 
planation of  the  facts  presupposes  that  the  pros- 
pect of  the  gratification  to  be  acquired  in  the 
future  operates  upon  our  present  calculations 
with  the  full  undiminished  magnitude  of  that 
gratification.  But,  if  we  estimate  the  future 
gratification  at  its  undiminished  magnitude  of 
ten,  we  cannot,  acting  intelligently  and  econom- 
ically, decide  to  take  upon  ourselves  for  its 
acquisition  a  total  sacrifice  of  the  magnitude 
of  ten.  The  abstinence  theory,  however,  lays 
especial  emphasis  upon  this  thought.  It 
teaches  that  the  value  of  a  future  production 
or  consumption  good  cannot  be  brought  to  a 
lower  level  than  ten  (to  speak  again  in  terms 
of  our  example),  because  the  addition  of  the 
sacrifice  of  waiting  raises  the  amount  of  the 
total  cost  to  that  sum,  and  the  producer  would 
not  consider  himself  sufficiently  remunerated 
for  this  sacrifice  if  the  commodity  brought  a 
lower  price.  This  process  of  reasoning  ex- 
pressly presupposes  that  the  value  of  the  future 


THE   ABSTINENCE   THEORY  35 

commodity  figures  in  the  calculations  of  the 
producer  with  an  undiminished  magnitude  of 
ten. 

In  other  words,  it  is  evident  that  we  can 
only  employ  the  second  of  these  explanations 
if  we  turn  our  backs  upon  the  first.  We 
must  hold  either  that  the  postponement  of  the 
gratification  expected  in  the  future  diminishes 
its  utility  in  our  estimation,  or  that  it  in- 
creases in  our  estimation  the  sacrifice  to  be 
undergone  by  the  amount  of  the  waiting ; 
but  we  cannot  hold  to  both  explanations  at 
the  same  time.  It  would  be  economic  and 
mathematical  nonsense  to  hold  that,  if  in  the 
calculations  of  the  producer  the  future  utility 
should  fall  from  ten  to  six,  while  the  sacrifice 
on  account  of  the  addition  of  the  element 
due  to  waiting  should  at  the  same  time  be 
increased  from  six  to  ten,  the  production  would 
be  found  remunerative.1 

1  In  order  to  forestall  every  possible  misunderstanding,  I  will 
at  once  meet  a  certain  objection  which  may  possibly  be  urged. 
A  superficial  observer  may,  perhaps,  be  tempted  to  explain  the 
matter  in  the  following  manner.  The  future  utility  of  ten,  to  be 
acquired  only  after  five  years,  will,  in  fact,  in  our  present  estima- 
tion, be  perspectively  diminished,  and  thus  estimated  at  only 


36          RECENT  LITERATURE   ON   INTEREST 

If,  then,  one  must  choose  between  the  two 
conceptions    which     Professor     Marshall    has 

6.21,  and  over  against  this  present  value  of  the  gratification 
stands  a  present  sacrifice  in  labour  or  money  of  6.21.  The 
sacrifice  of  waiting,  on  the  other  hand,  appears  first  in  the  future, 
and  will  find  its  compensation  in  the  then  full  future  value 
of  the  gratification,  in  amount,  ten.  On  the  one  hand,  there- 
fore, present  value  and  present  sacrifice  offset  each  other,  and  on 
the  other,  the  future  value  is  in  harmony  with  the  total  magnitude 
of  sacrifice,  which  includes  also  that  of  the  future.  In  this  pro- 
cess of  thought,  however,  the  fact  is  overlooked  that  every 
rational  economic  calculation  must  include  the  sacrifices  not  yet 
due  as  well  as  those  at  present  experienced.  If  I  propose  to  my- 
self the  problem,  whether  I  shall  buy  a  dwelling  house  offered  me 
for  the  payment  of  twenty  annual  instalments  of  1000  florins 
each,  I  may  not  bring  the  present  value  of  the  house  into  com- 
parison with  the  rate  of  sacrifice  at  present  experienced,  that  is, 
with  the  first  instalment  of  1000  florins  alone,  but  I  must,  of 
course,  place  over  against  the  value  of  the  house  the  value  of  the 
entire  twenty  instalments.  To  be  sure,  the  instalments  not  yet 
due  will  enter  the  calculation  at  their  reduced  present  value.  In 
an  analogous  manner,  and  according  to  the  abstinence  theory, 
the  total  sacrifice  which  must  be  made  for  a  remote  gratification 
consists  of  present  sacrifice  of  labour  or  money,  and  of  a  series 
of  further  sacrifices  of  waiting  spread  over  the  entire  period  of 
time.  In  our  present  calculations  this  latter,  like  the  instalments 
on  the  house  due  at  a  later  period,  may  enter  into  the  account 
only  after  the  deduction  of  a  certain  discount  corresponding  to 
the  distance  of  their  removal  from  us  in  time.  But  they  must 
certainly,  in  some  way,  be  taken  into  consideration,  especially 
since,  as  we  know,  in  the  case  of  the  abstinence  theorists,  it  is  pre- 
cisely the  consideration  of  these  which  should  hold  the  producers 
back  from  directing  production  toward  less  valuable  future  goals. 
In  our  illustration,  this  conception  would  be  expressed  in  the  fol- 


THE  ABSTINENCE   THEORY  37 

brought  together  in  his  theory,  the  choice 
cannot  be  doubtful,  I  think,  even  to  the  dis- 
tinguished scientist  whose  opinion  I  am  com- 
pelled to  oppose.  On  the  one  side  the 
experience  that  people,  and  even  careless 
people,  rate  the  prospect  of  a  future  gratifica- 
tion lower  than  a  present  gratification  of  the 
same  magnitude  is  very  much  too  pronounced 

lowing  manner :  The  labour  or  money  sacrifice  to  be  endured 
amounts  to  6.21 ;  the  sum  of  the  sacrifices  of  five  years  of  wait- 
ing, through  which  the  total  sacrifice  is  brought  up  to  10, 
amounts  accordingly  to  3.79.  Since,  however,  these  sacrifices  of 
waiting  belong  still  to  the  future,  and  indeed  are  to  be  experi- 
enced on  the  average  only  after  two  and  a  half  years,  their  pres- 
ent value  is  estimated  correspondingly  lower;  that  is,  on  the 
basis  of  a  discount  rate  of  10  per  cent,  at  about  2.96.  Accord- 
ing to  this  the  present  value  of  the  sacrifices  to  be  considered 
would  amount  to  6.21  +  2.96  =  9.17.  The  present  value  of  the 
gratification  to  be  obtained,  however,  amounts  to  only  6.21.  The 
proportion  between  these  aggregates,  therefore,  precludes  any 
intelligent  economic  action. 

Frankly  speaking,  I  am  astonished  that  Professor  Marshall 
has  not  felt  disturbed  in  his  mathematical  treatment  of  the  whole 
question  by  such  unavoidable  numerical  incongruities.  To  be 
sure,  I  myself  am  too  little  of  a  mathematician  to  be  able  to 
decide  how  and  why  it  has  been  possible  for  Professor  Marshall 
to  conceal  from  himself  or  to  veil  such  real  and  unquestioned 
errors  in  the  mathematical  tables  developed  by  him  in  which  he 
expresses  the  progressive  diminution  in  the  value  of  future  grati- 
fications as  well  as  the  progressive  increase  of  the  sacrifice  of 
waiting.  (Notes  13  and  14  of  his  mathematical  Appendix.) 


38          RECENT   LITERATURE   ON   INTEREST 

to  permit  of  denial,  and  on  the  other  side 
those  objections  which  count  against  the  exist- 
ence of  an  independent  sacrifice  of  abstinence 
or  of  waiting,  and  which  I  have  worked  out 
in  detail  in  the  ninth  chapter  of  my  book, 
will  gain  in. weight,  on  account  of  the  necessity 
of  a  choice,  even  in  the  eyes  of  those  who 
have  up  to  this  time  been  unimpressed  by 
them.  I  believe  that  upon  a  renewed  and 
careful  investigation  of  the  question,  the  con- 
viction can  scarcely  be  avoided  in  the  long 
run  that  non-enjoyment  is  not  suffering,  and 
that  an  unfruitful  piece  of  work  cannot  be 
represented  by  a  limited  quantity  of  labour 
sacrifice  and  by  an  unlimited  quantity  of 
sacrifice  composed  of  waiting  to  all  eternity. 
However,  in  case  that  in  the  minds  of  espe- 
cially sceptical  readers  some  remnant  of  doubt 
should  still  remain,  I  wish  in  conclusion  to 
submit  also  the  following  considerations:  — 

He  who,  according  to  the  meaning  of  the 
abstinence  theorists,  regards  waiting  as  an 
independent  sacrifice,  must  be  content  with 
the  deduction  that  even  careless  persons  who 
take  no  thought  for  the  future  are  inclined 


THE   ABSTINENCE   THEORY  39 

to  make  an  equally  great  sacrifice  for  the 
acquisition  of  an  enjoyment  never  so  far 
removed  as  for  one  which  entices  them  at 
the  moment.  The  equally  great  sums  of 
sacrifice  are  only  made  up  in  different  ways ; 
in  the  case  of  present  gratifications,  out  of 
work  alone ;  in  the  case  of  future  gratifica- 
tions, out  of  somewhat  less  work  and  an 
amount  of  waiting  sufficient  to  bring  the 
total  sacrifice  up  to  the  same  level. 

Still  further,  without  any  doubt,  and  even 
according  to  Marshall,  the  psychological  phe- 
nomenon here  under  discussion  is  extended 
not  only  to  the  valuation  of  future  pleasures, 
but  also  to  that  of  future  pains.  Let  us 
suppose  that  some  one  is  threatened  by  an 
ill  which,  if  precautions  are  not  now  taken, 
will  come  upon  him  one  year  hence,  and  at 
that  time  will  have  a  magnitude  represented 
by  ten.  Certain  it  is  that  this  person,  if  he 
discounts  future  events  at  the  rate  of  ten  per 
cent,  will  not  be  inclined  to  undergo  a  sacri- 
fice represented  by  a  greater  figure  than  9 
for  the  purpose  of  warding  off  that  ill.  Now, 
on  a  pinch,  I  can  conceive  that  if  the  prepara- 


40          RECENT   LITERATURE   ON   INTEREST 

tion  in  question  concerns  some  sort  of  positive 
gratification,  the  waiting  for  that  gratification 
might  be  felt  as  a  sacrifice,  which  would 
swell  the  total  sacrifice  successively  up  to 
ten,  but  I  cannot  possibly  imagine  what  sacri- 
fice is  involved  in  my  inability  to  remove  a 
threatened  ill  which  does  not  yet  press  upon 
me.  What  "  painful  endurance  of  want "  lies 
in  the  fact  that  in  midsummer  I  am  not  in 
possession  of  the  overcoat  in  process  of  prepa- 
ration on  the  spindles  and  looms  ;  or  in  the 
fact  that  a  young  man  of  thirty,  who  at  the 
age  of  fifty  expects  to  need  a  pair  of  glasses 
for  long-sightedness,  must  wait  twenty  years 
for  the  preparation  of  those  glasses,  for  the 
production  of  which  meantime  remote  pre- 
paratory labours  in  mine  and  factory  have 
already  been  begun  ?  To  the  unprejudiced 
observer  I  believe  that  the  connection  is  as 
clear  as  daylight  By  a  painful  waiting  for 
the  removal  of  an  evil  not  yet  present  the 
sacrifice  side  of  the  scales  is  not  more  and 
more  weighed  down  until  it  is  equal  to  the 
full  magnitude  of  a  utility  of  ten,  but  the 
balance  of  both  sides  of  the  scales  was 


THE   ABSTINENCE   THEORY  41 

established  in  the  beginning  at  the  moment, 
alone  decisive,  in  which  the  economic  calcula- 
tion and  decision  was  made,  and  by  the  fact 
that  the  estimation  of  the  threatening  future 
ill  was  perspectively  diminished,  and  that  its 
removal  was  therefore  looked  upon  as  a  corre- 
spondingly smaller  utility,  and  that  in  conse- 
quence a  sacrifice  of  labour  of  correspondingly 
lesser  magnitude  would  be  regarded  as  its 
equivalent.1 

1  If  some  one  should  here  object  that  the  labour  which  is  ex- 
pended as  a  precaution  against  the  future  pain  might  have  been 
expended  also  in  the  preparation  of  a  present  positive  gratifica- 
tion, and  that  the  loss  of  this  other  gratification  forms  the  con- 
tent of  the  sacrifice  of  waiting,  I  should  think  first  of  all  that  by 
such  a  method  of  viewing  the  situation  the  fundamental  question 
was  only  avoided,  not  solved,  and  in  the  second  place  I  should 
propose  that  such  a  method  of  eluding  the  question  be  cut  off 
by  considering  a  concrete  situation.  Let  us  assume,  for 
instance,  that  the  subject  of  our  example  is  a  prisoner  who 
has  no  winter  clothing,  and  who  knows  that  his  dismissal  will 
occur  in  the  course  of  a  year,  and  at  the  time  of  the  greatest  cold 
of  winter,  and  who,  according  to  the  regulations  of  the  prison,  is 
permitted,  but  not  compelled,  to  earn  a  sum  sufficient  to  purchase 
winter  clothes  by  labour  which  he  is  not  permitted  to  employ  in 
any  other  way,  or  for  the  securing  of  any  earlier  gratifications 
during  the  continuance  of  his  incarceration.  In  this  case  there  is 
absolutely  no  room  for  the  sacrifice  of  waiting  in  addition  to  that 
of  labour  which  would  be  imposed  upon  him  by  the  devotion 
of  his  labour  to  the  acquisition  of  warm  winter  clothes,  and  he 


42          RECENT   LITERATURE   ON    INTEREST 

The  fundamental  error  of  the  abstinence 
theory,  therefore,  consists  in  the  fact  that  it 
puts  on  the  wrong  side  of  the  balance  those 
differences  which  are  undoubtedly  created  by 
the  remoteness  of  time,  and  which  exert  an 
unfavourable  influence  upon  the  balance  of  our 
welfare;  that  it  sees  a  greater  sacrifice,  where 
in  reality  there  is  a  diminution  in  utility,  and 
that  thus  it  makes  a  wrong  choice  between  the 
two  conceivable  interpretations  of  the  facts. 
Professor  Marshall,  however,  and  with  him  all 
those  scientists1  who  have  considered  the  psy- 
chological fact,  introduced  into  the  science 
by  Rae  and  Jevons,  of  the  smaller  estima- 
tion of  future  pleasures  and  pains  as  identical 
with  the  recognition  of  the  abstinence  theory, 
makes  an  additional  error,  in  that  he  fails  ut- 

who  does  not  entirely  jdeny  the  fact  that  even  in  the  case  of  a 
man  who  finds  himself  in  this  condition  the  regard  for  the  future 
can  be  less  efficient  than  that  for  the  present  will  indeed  be 
forced  to  declare  the  second  interpretation,  recommended  also 
by  so  many  other  considerations,  as  the  only  one  permissible, 
namely,  that  the  remoteness  in  time  diminishes  the  magnitude  of 
future  pleasures  and  pains  in  our  present  estimation. 

1  As,  for  example,  in  former  times  John  Stuart  Mill  and 
Jevons,  in  our  day  Macfarlane,  and  indeed  also  Carver ;  in  refer- 
ence to  the  last  see  farther  on. 


THE   ABSTINENCE  THEORY  43 

terly  to  see  that  a  choice  must  here  be  made 
between  two  conceptions  which  cannot  possibly 
exist  side  by  side. 

This  is  the  most  important,  but  not  the  only 
reason  why  I  am  unable  to  regard  Professor 
Marshall's  treatment  of  the  interest  problem  as 
a  satisfactory  solution.  As  I  have  had  occa- 
sion to  remark  in  another  place,1  Professor 
Marshall  is  inclined  to  lay  very  little  stress 
upon  mere  differences,  or  imperfections  in  the 
method  of  expressing  a  thought,  and  at  the 
same  time  is  inclined  to  regard  very  important 
differences  as  mere  variations  in  the  form  of 
expression.  There  can  be  no  doubt,  however, 
that  we  are  not  here  concerned  with  merely 
a  less  commendable  form  of  expressing  a  cor- 
rect thought.  We  are  concerned  with  an 
essential  and  characteristic  link  in  a  logical 
chain  of  thought  which  should  result  in  an 
explanation  of  interest.  That  Professor  Mar- 
shall, himself,  regards  this  critical  link  as  a 
very  essential  one,  is  evident  from  the  fact  that 
he,  although,  as  I  think,  wrongly,  makes  the 
entire  decision  between  his  conception  and 

1  See  my  Preface  to  the  second  edition. 


44         RECENT   LITERATURE   ON   INTEREST 

that  of  the  socialists  hang  upon  the  question 
whether  waiting  is  to  be  construed  as  an  inde- 
pendent sacrifice  in  addition  to  that  of  labour 
or  not.1  That,  in  any  case,  there  is  a  material 
difference  between  his  view  of  the  matter  and 
mine  becomes  clear  from  the  fact  that,  accord- 
ing to  his  conception,  the  disappearance  of  that 
psychological  fact  which  expresses  itself  in  the 
preference  of  present  for  future  goods  must 
also  have  as  its  result  the  disappearance  of 
interest,2  while,  according  to  my  opinion,  in 

1  p.  668  sq. 

2  Marshall  himself  regards  such  a  change  in  our  physical  and 
moral  disposition  as  by  no  means  inconceivable,  and  as  a  logical 
result  of  his  explanation  of  interest  as  a  reward  for  the  sacrifice 
involved  in  waiting,  he  gives  us  clearly  to  understand  that  it  is 
his  opinion  that  in  such  a  case  "  interest  would  be  negative  all 
along  the  line."    To  be  sure,  he  expects  this  result  also  in  the 
case  in  which,  without  a  complete  disappearance  of  all  preference 
for  equally  great  present  enjoyments,  the  care  for  old  age  and 
family  has  become  so  strong  in  so  many  people  that  the  sums 
saved  for  this  purpose  are  more  than  adequate  for  the  new  open- 
ings for  the  advantageous  use  of  accumulated  wealth  (p.  663, 
n.  i).    For  subtle  investigators   I   may  add  that  by  this  last 
clause,  referring  to  advantageous  opportunities  for  production,  a 
complete  material  agreement  of  our  opinions  has  not  been  estab- 
lished, for  on  the  one  hand,  in  my  opinion,  even  in  a  completely 
stationary  state,  and  even  if  opportunities  for  new  investments  of 
capital  were  entirely  wanting,  the  superior  productivity  of  the 
roundabout  process  of  production  would  be  sufficient  to  main- 


THE  ABSTINENCE  THEORY  45 

that  case  only  one  of  several  sources  of  the 
interest  phenomena  would  be  dried  up.  In- 

tain  interest  for  any  length  of  time  (on  this  point  see  especially 
my  monograph  on  "  Some  Controverted  Questions  in  the  Theory 
of  Interest,"  Vienna,  1900)  ;  and  on  the  other  hand,  in  the  pas- 
sage cited,  Professor  Marshall  apparently  regards  the  frequent 
appearance  of  new  opportunities  for  the  investment  of  capital  as 
an  obstacle  to  the  complete  disappearance  of  interest  only  on 
condition  that  some  difference  of  estimation  between  present  and 
future  enjoyments  otherwise  equal  still  persists.  As  Professor 
Marshall  has  himself  explained  with  unrivalled  clearness  (p.  197, 
n.  i),  a  distinction  must  be  drawn  between  enjoyments  and 
goods  as  objects  of  a  different  valuation  with  regard  to  the  pres- 
ent and  the  future.  In  the  case  of  goods  a  very  influential  r61e 
can  be  played  by  the  circumstance  that  the  same  sum  yields  un- 
equally great  objective  marginal  utilities  in  different  periods  of 
time.  Therefore,  a  person  who  in  and  for  himself  would  prefer  a 
present  enjoyment  to  an  equally  great  future  one,  may  neverthe- 
less decide  to  save,  even  without  the  prospect  of  an  increase 
in  interest  in  case  the  sum  saved  and  to  be  transferred  to  the 
future,  that  is,  to  the  point  of  time  of  a  needy  old  age,  yields  at 
that  time  a  correspondingly  greater  marginal  utility  than  it  would 
have  yielded  in  case  of  its  consumption  at  the  moment.  Evi- 
dently Professor  Marshall's  argument  has  reference  to  this  con- 
sideration. So  long  as  the  need  for  new  investments  of  capital 
is  met  by  the  saving  of  those  among  whom  the  underestimation 
of  future  pleasures  is  compensated  by  the  increase  of  the  objec- 
tive marginal  utility  of  the  sums  of  goods  transferred  to  the 
future,  no  sacrifice  of  abstinence  needed  for  such  remuneration 
appears,  and  interest  may  be  wanting.  However,  if  the  amount 
of  capital  needed  for  new  investments  exceeds  this  sum,  then  the 
underestimation  of  future  enjoyments  will  not  be  covered  by  the 
increase  in  the  objective  utilities  of  like  quantities  of  goods,  and 


46          RECENT  LITERATURE   ON   INTEREST 

terest  itself  would  continue,  though  with  di- 
minished strength,  because,  even  without  any 
underestimation  of  the  future,  the  fact  that 
more  roundabout  methods  of  production  are 
more  fruitful  must  secure1  to  present  goods 
which  render  possible  the  undertaking  of  such 
roundabout  processes  a  superiority  of  value 
over  future  goods,  not  merely  for  the  moment, 
but  for  periods  of  time,  which,  measured  by 
the  strictest  standard,  must  be  counted  as  the 
longest  "secular"  periods.2 

In  conclusion,  I  wish  to  remark  that  in  Mar- 
shall may  be  found  still  another  class  of  ex- 
pressions in  which  he  has  established  a  special 
connection  between  interest  and  the  use  of 
capital,  and  which,  if  they  were  the  only  ones 

must  therefore  be  remunerated  by  interest.  If  this  be  the  real 
opinion  of  Professor  Marshall,  and  I  doubt  not  that  it  is,  then  in 
his  mind  the  continued  existence  of  a  different  estimation  of  pres- 
ent and  future  enjoyments  as  the  foundation  of  the  sacrifice  of 
abstinence  to  be  paid  for  in  interest,  is  a  conditio  sine  qua  non 
for  the  existence  of  interest.  In  my  opinion,  on  the  other  hand, 
it  is  not  so,  because  the  different  estimates  placed  upon  present 
and  future  goods,  which  in  any  case  is  necessary  for  interest,  can 
be,  and  would  be,  brought  about  by  the  superior  productivity  of 
roundabout  processes.  (See  next  note.) 

1  For  details  see  ist  ed.  of  my  "Positive  Theory  of  Capital," 
Smart's  translation,  p.  260  sq.  2  Cf.  Marshall,  p.  450. 


THE   ABSTINENCE   THEORY  47 

referring  to  this  topic,  would  furnish  grounds 
for  the  presumption  that  he  had  also  adopted 
the  methods  of  thought  peculiar  to  the  use 
theory.1  However,  in  view  of  the  fact  that  he 
expresses  doubt  whether  the  most  outspoken 
representative  of  the  use  theory  would  wish  to 
teach  in  all  their  bearings  the  principles  pecul- 
iar to  it,  I  am  unable  to  believe  that  he  him- 
self is  inclined  to  do  this,  and  must  rather  hold 
to  the  presumption  that  the  employment  of 
methods  of  expression  characteristic  of  the  use 
theory  is  to  be  explained  by  a  certain  freedom 
or  carelessness  of  expression  which  Marshall 
appears  to  claim  for  himself  and  others  on  the 

xpp.  662,  663,  665  sq.,  and  666,  n.  In  these  expressions 
Marshall  repeatedly  designates  the  use  or  service  of  capital  as  the 
object  for  which  interest  is  paid,  and  expressly  states  that  in  this 
connection  no  essential  difference  exists  between  the  rent  of 
a  durable  good  (for  example,  a  horse)  and  the  loan  of  a  perish- 
able and  replaceable  good,  such  as  a  sum  of  money,  and  adds  that 
the  distinction  drawn  by  older  writers  between  renting  and  lend- 
ing, though  from  an  analytical  point  of  view  interesting,  possesses 
very  little  practical  significance.  An  entirely  similar  mingling  of 
expressions  (and  one  to  be  judged  in  a  similar  manner)  in  which 
the  abstinence  theory  is  represented  by  terms  of  expression  which 
seem  to  point  also  to  the  use  theory  may  be  found  in  Sidgwick 
("  Principles  of  Political  Economy,"  2d  ed.,  1887,  pp.  245  sq., 
167  sg.,  and  264). 


48    RECENT  LITERATURE  ON  INTEREST 

subject  of  the  theory  of  interest,  notwithstand- 
ing the  fact  that  unclearness  and  ambiguity  of 
expression  are  responsible  for  so  many  mis- 
takes in  this  field,  and  notwithstanding  the  fact 
that  this  distinguished  scholar  is  accustomed  in 
other  respects  to  place  so  great  a  value  upon 
clearness  of  conception  and  fitness  of  expression 
of  thoughts. 

Still  another  interesting  attempt  to  give  a 
new  significance  to  the  old  abstinence  theory 
falls  within  the  period  under  discussion.  This 
was  made  by  an  American  named  Carver,1 
whose  discussion  shows  much  discrimination 
and  a  remarkable  power  of  combination,  but, 
in  my  opinion,  fails  at  the  critical  point  on 
account  of  a  misunderstanding. 

His  somewhat  subtle  process  of  thought, 
illuminated  by  a  number  of  geometrical  dia- 
grams, may  be  briefly  presented  in  the  follow- 
ing manner.2  Carver  proceeds  from  the 

1  "  The  Place  of   Abstinence  in  the  Theory  of   Interest " 
(Quarterly  Journal  of  Economics,  October,  1893,  pp.  40-61). 

2  As  a  careful  reader  will  soon  notice,  Carver's  process  of 
thought  proceeds  for  a  considerable  distance  parallel  with  a  cer- 
tain subtle  process  of  reasoning  which  we  have  already  met  in 
the  work  of  Professor  Marshall  (see  ante,  p.  44,  n.  2).     I  may, 


THE   ABSTINENCE   THEORY  49 

perfectly  correct  view,  that  large  quantities  of 
present  goods  would  be  saved  and  devoted  to 
the  future  even  if  no  interest  were  received, 
indeed,  even  if  some  expense  were  involved  in 
their  preservation.  He  also  draws  the  limits  of 
these  savings  in  an  entirely  correct  manner. 
From  his  present  stock  of  goods  a  careful 
manager  will  save  and  devote  to  the  future 
such  a  quantity  that  the  marginal  utility  which 
the  last  increment  saved,  —  for  example,  the 
last  florin,  —  yields  for  the  future  is  as  great  as 
the  utility  which  the  last  florin  expended  for 
present  enjoyment  yields.  For  example,  a 
prudent  owner  of  100,000  florins  of  property 
would  certainly  not  devote  the  whole  or  even 
a  very  considerable  part  of  this  amount  to 
present  consumption,  even  if  there  were  no 
interest,  because  in  that  case  he  would  secure 
the  satisfaction  of  very  unimportant  wants,  and 
would  reserve  no  means  for  satisfying  impor- 
tant wants  in  the  future.  On  the  contrary,  he 


therefore,  venture  the  suggestion  that  Carver  may  have  received 
from  those  expressions  of  Marshall  the  first  impulse  to  his 
theory,  which,  to  be  sure,  at  a  certain  point  takes  an  entirely 
different  direction. 


50          RECENT   LITERATURE   ON   INTEREST 

would  stop  his  present  consumption  at  the 
point  where,  with  due  regard  to  the  streams 
of  goods  maturing  in  the  future  and  available 
for  that  period,  the  marginal  utility  of  the  last 
florin  expended  equals  the  future  marginal  util- 
ity of  the  last  florin  saved. 

Another  very  important  point  is  also  brought 
out  by  Carver  and  correctly  illustrated  in  his 
diagrams.  According  to  their  intellectual  ten- 
dencies and  temperaments,  most  men  are 
accustomed  to  underestimate  future  pleasures 
and  pains  and  future  utilities.  A  careless  or 
extravagant  man,  for  example,  will  be  inclined 
at  the  moment  to  estimate  at  a  figure  perhaps 
not  higher  than  10,  an  enjoyment  or  a  utility 
to  be  expected  one  year  hence,  which  at  the 
moment  of  its  actual  appearance  will  be  repre- 
sented by  the  figure  15.  Now,  since  our 
present  economic  calculations  must  be  deter- 
mined by  our  present  estimate  of  the  possible 
satisfactions  between  which  choice  may  be 
made,  the  above-described  limits  to  saving 
without  interest  should  be  modified,  since  sav- 
ing will  be  extended  to  that  point  at  which  the 
marginal  utility  of  the  last  florin  expended  for 


THE   ABSTINENCE  THEORY  51 

present  satisfactions  equals  the  present  estimate 
of  the  future  marginal  utility  of  the  last  florin 
saved.  In  our  example,  this  limit  will  be 
reached  if  the  marginal  utility  of  the  last- 
expended  florin,  10,  amounts  to  the  future 
marginal  utility  of  the  last-saved  florin,  that 
is,  15,  which  15  in  the  present  estimation  is 
only  equal  to  the  present  utility  of  10. 

In  order  to  throw  a  still  clearer  light  upon 
Carver's  innovation,  I  will  add  that  all  previ- 
ous representatives  of  the  abstinence  theory 
have  expressed  or  tacitly  connected  the  sacri- 
fice of  abstinence  with  precisely  this  last  differ- 
ence. The  preference  for  present  enjoyments 
is,  in  their  eyes,  the  chief  ground  why  the  with- 
holding of  enjoyments  or  the  waiting  for  them 
is  felt  to  be  a  sacrifice.  The  greater  that  pref- 
erence, the  greater  are  the  obstacles  to  saving 
and  capital-building,  and  these  can  only  be 
overcome  in  the  degree  that  the  sacrifice  in- 
volved in  their  removal  is  adequately  remuner- 
ated by  interest.  Thus  the  height  of  interest 
is  brought  into  connection  with  the  strength 
of  the  preference  for  present  goods.  In  con- 
formity with  the  old  abstinence  theory,  there- 


52    RECENT  LITERATURE  ON  INTEREST 

fore,  the  difference  between  the  true  magnitude 
of  the  future  utility  and  its  underestimated 
present  amount,  represented  in  our  intention- 
ally drastic  example  by  the  difference  between 
15  and  10,  appears  as  the  real  force  which 
determines  interest. 

At  this  point  Carver  adopts  an  entirely  dif- 
ferent line  of  thought.  The  existence  of  the 
psychological  fact  which  we  have  just  described 
is  recognized  and  expressly  noted  by  him ;  but 
he  sees  the  content  of  the  abstinence  which  de- 
mands remuneration  not  in  it,  but  in  something 
entirely  different.  So  long  as  saving  has  the 
effect  that  the  present  goods  transferred  to  the 
future  yield  in  the  future  a  utility  which  in 
present  estimation  is  more  important  than  that 
utility  which  the  saved  goods  could  have  had 
in  case  of  their  consumption  in  the  present,  no 
sacrifice  is  connected  with  it.  This  part  of  the 
accumulation  of  capital  is  without  cost,  and  re- 
quires, therefore,  no  interest  as  a  remuneration 
for  sacrifice  (p.  49) ;  but  real  sacrifice  begins 
when  the  saving  should  be  or  must  be  extended 
beyond  that  limit.  In  our  example,  for  in- 
stance, if  still  more  goods  should  be  withdrawn 


THE   ABSTINENCE   THEORY  53 

from  present  enjoyment  and  transferred  to  the 
future,  this  could  only  happen  on  condition  that 
the  present  satisfaction  of  those  wants  which  still 
possess  an  importance  superior  to  the  figure  10 
should  be  discontinued,  for  example,  on  condi- 
tion that  the  category  of  wants  whose  impor- 
tance lies  between  the  figures  10  and  1 1  should 
go  unsatisfied.  But  if  the  goods  withdrawn 
from  the  service  of  the  present  are  added  to 
those  provisions  for  the  future  which  have  been 
accumulated  by  preceding  saving  without  cost 
and  in  the  gratification  of  present  wants  have 
already  reached  the  value  of  10,  this  fresh  in- 
crement can  naturally  only  be  applied  to  the 
gratification  of  less  important  wants,  for  ex- 
ample, to  those  the  importance  of  which  lies 
between  the  figures  10  and  9.  The  continu- 
ance of  the  process  of  saving,  therefore,  leads 
to  the  result  that  a  number  of  goods,  which  in 
present  use  would  have  yielded  a  final  utility  of 
from  10  to  1 1,  in  the  future  will  yield  a  smaller 
utility,  one  estimated  according  to  present  cal- 
culations between  10  and  9.  The  difference 
represents  a  pure  loss  caused  by  the  process  of 
saving,  a  real  sacrifice,  due  to  abstinence  from 


54          RECENT   LITERATURE   ON   INTEREST 

present  gratification,  which  cannot  and  will  not 
be  made  without  an  adequate  compensation  in 
the  form  of  interest.  "  The  loss  in  the  subjec- 
tive valuation  of  this  last  increment  must  be 
compensated  for  by  an  increase  in  objective 
goods  or  interest  "(p.  53). 

If  the  needs  of  production  could  be  satisfied 
with  the  goods  saved  without  sacrifice,  there 
would  be  no  interest.  But  if  more  capital  is 
needed,  that  is  to  say,  if  more  capital  than  that 
saved  without  cost  can  be  invested  in  the 
gradual  exploitation  of  remunerative  oppor- 
tunities for  investment  and  "  still  afford  profit 
at  the  margin,"  then  interest  must  appear;  for 
then,  in  order  to  accumulate  the  additional 
savings,  somebody  must  make  the  previously 
mentioned  sacrifice  in  subjective  value,  and 
this  sacrifice  demands  compensation.  For  the 
rate  of  interest,  "  the  marginal  sacrifice  of  sav- 
ing" is  decisive  (p.  53);  that  is,  the  magnitude 
of  the  last  and  most  costly  part  of  the  saving 
(that  part  which  involves  the  greatest  loss  in 
subjective  value)  which  is  needed  to  satisfy  the 
demands  of  production. 

It  is  easy  to  see  that  the  substance  of  the 


THE  ABSTINENCE   THEORY  55 

abstinence  sacrifice  which  demands  compensa- 
tion in  interest  is  explained  by  Carver  in  a 
manner  entirely  different  from  that  of  the 
other  abstinence  theorists.  The  latter  put  the 
emphasis  upon  the  fact  that  man,  as  he  is 
constituted,  dislikes  waiting  for  gratifications. 
Carver,  on  the  other  hand,  does  not  find  the 
sacrifice  in  a  postponement  of  gratification, 
but  in  the  further  circumstance,  conditionally 
connected  therewith,  that  on  account  of  the  dis- 
position to  save,  the  relation  between  wants 
and  the  means  for  their  satisfaction  is  so  dis- 
turbed that  the  same  quantity  of  goods  has  less 
final  utility  and  value  in  the  future  than  in  the 
present.  Carver  sees  the  essence  of  the  sacri- 
fice not  in  the  fact  that  the  gratification  comes 
later,  but  that  it  is  smaller  than  the  present 
one,  its  rival.  The  difference  in  the  essence 
of  the  sacrifice  may  easily  be  represented  by 
the  figures  of  our  example.  Whereas,  in  the 
first  case,  the  difference  between  the  real  value 
of  a  future  gratification  and  the  present  esti- 
mation of  it  would  be  registered  in  our  exam- 
ple by  the  figures  15  and  10,  the  value  of 
Carver's  sacrifice  of  abstinence  is  represented 


56          RECENT   LITERATURE   ON   INTEREST 

by  the  difference  between  n  and  9,  a  result 
wholly  different  and  due  to  causes  other  than 
those  which  explain  the  difference  between  the 
last  use  realized  in  the  present  and  the  present 
value  of  the  last  use  realized  in  the  future. 

But  it  is  further  easy  to  see  that  Carver  has 
mistaken  an  effect  of  interest  for  its  cause. 
All  the  facts  that  he  presents  are  perfectly 
correct,  even  the  one  regarding  the  decrease 
of  final  utility 1  in  case  a  future  period  should 
be  better  endowed  with  funds  than  the  present ; 
but  he  confounds  cause  and  effect.  Not  be- 
cause and  in  the  same  measure  as  the  future 
is  better  endowed  does  interest  appear  or  the 
rate  increase,  but  just  the  reverse.  Interest 
must  be  an  actual  fact,  in  order  that  there 
may  be  an  economic  cause  for  a  better  en- 
dowment of  the  future ;  and  the  higher  interest 
is,  the  more  this  endowment  may  be  increased. 
If,  and  because,  the  rate  of  interest  is  5  per 
cent,  the  endowment  of  the  future  may  reason- 
ably be  increased  to  such  an  extent  that  105 
pieces  of  goods  in  the  following  year  will  yield 

1  I  have  myself  drawn  attention  to  this  phenomenon  (see  my 
"  Positive  Theory,"  1st  ed.,  p.  446). 


THE   ABSTINENCE   THEORY,  57 

the  same  utility  as  100  at  present;  if,  and  be- 
cause, interest  is  at  the  rate  of  20  per  cent,  the 
endowment  of  the  future  may  be  increased 
until  1 20  pieces  in  the  following  year  yield 
the  same  utility  as  100  at  present  (always  refer- 
ring to  the  present  estimation),  and  so  on. 

On  the  other  hand,  that  other  psychological 
fact  in  which  the  abstinence  theorists  see  the 
essence  of  the  sacrifice  of  abstinence,  has  a 
share  in  the  origin  of  interest.  The  disposi- 
tion of  people  so  much  to  prefer  immediate 
enjoyment  to  future  gratification  that  they 
place  a  future  pleasure  of  the  value  of  15  on 
a  par  with  a  present  one  of  the  value  of  10, 
is  indeed  the  real  cause  why  the  goods  pro- 
duced for  the  future  should  obtain  and  main- 
tain a  value  in  excess  of  their  cost.  With  that 
disposition,  producers  cannot  be  inclined  to 
incur  a  greater  expense  than  10  for  the  acquisi- 
tion of  a  product  that  will  in  time  have  a  value 
of  15,  but  which  in  their  present  estimation  is 
worth  only  10.  The  completion  of  the  process 
of  production  will  yield,  after  the  expiration  of 
a  year,  a  product  of  the  actual  value  of  15, 
against  which  there  are  costs  of  production 


58          RECENT   LITERATURE   ON   INTEREST 

of  the  value  of  10  only.  Hence,  a  surplus,  or 
an  interest  of  5,  results.  Indeed,  this  surplus 
will  result,  even  if  Carver's  sacrifice  of  absti- 
nence is  not  taken  into  account  at  all,  pro- 
vided that  only  such  a  quantity  of  goods  is 
devoted  to  the  future  as,  according  to  the  pres- 
ent estimate,  will  make  a  single  unit  both  in 
the  present  and  the  future  yield  a  marginal 
utility  of  10. 

And  even  the  removal  of  that  surplus  of 
value  by  competition  would  under  these  cir- 
cumstances be  effectually  opposed  by  the  same 
motive  that  produced  it,  without  the  necessity 
of  the  appearance  or  of  the  operation  of  Car- 
ver's sacrifice  of  abstinence.  If,  for  example, 
by  a  temporary  increase  of  production  the 
objective  value  of  the  product  should  be  dimin- 
ished from  15  to  14,  this  14,  so  long  as  the 
coefficient  of  undervaluation  remains  the  same, 
would  be  thought  equal  to  a  smaller  amount 
than  10,  namely  to  about  9.3.  If,  as  supposed, 
goods  devoted  to  present  consumption  fall  to 
a  final  utility  of  10,  their  employment  for  the 
acquisition  of  a  pleasure  valued  at  9.3  would 
evidently  appear  uneconomical.  The  category 


THE   ABSTINENCE    THEORY  59 

of  present  wants,  the  importance  of  which  is 
under  10  but  above  9.3,  would  be  preferred  to 
the  less  remunerative  expenditure  for  the  future ; 
and,  in  consequence,  smaller  means  would  be 
reserved  for  future  use,  the  production  of  future 
good  diminished,  and  their  value  finally  en- 
hanced until  the  former  relation,  indicated  by 
an  objective  value  of  15,  equal  in  present  esti- 
mation to  present  final  utility  of  10,  be  rees- 
tablished, and  with  it  a  surplus  in  value  of  5. 
If  interest  has  once  been  called  into  existence 
by  these  forces,  it  will  follow  as  a  normal  con- 
sequence that  people  will  endow  the  future 
somewhat  more  richly  than  they  would  have 
done  if  there  had  been  no  interest,  and  this 
will  give  rise  to  the  phenomenon  noticed  by 
Carver  of  the  falling  of  the  present  estimate 
of  the  future  marginal  utility  of  a  unit  of  goods 
below  its  present  utility,  which,  of  course,  is 
not  the  same  thing  as  the  falling  of  its  real 
marginal  utility.  But  all  this  is  entirely  a  con- 
sequence of  interest.  It  may  be  that  a  second- 
ary reaction  on  the  rate  of  interest  will  emanate 
from  it;  but  it  is  to  be  observed  that  this  re- 
action will  be  exerted  in  the  direction  of  a 


60         RECENT   LITERATURE   ON   INTEREST 

reduction  of  interest,  and  the  role  of  interme- 
diary cause  will  doubtless  fall  to  the  increased 
intensity  of  the  motive  to  saving,  but  by  no 
means  to  Carver's  sacrifice  of  abstinence, 
which  would  manifest  itself  in  exactly  the  op- 
posite direction,  namely,  in  increased  saving, 
which  richly  endows  the  future,  and  therefore 
presses  down  the  marginal  utility  of  the  savings. 
This  brings  me  to  the  point  at  which,  per- 
haps, Carver's  misconception  can  be  most 
clearly  illustrated.  Without  any  question,  in- 
terest arises  from  the  scarcity  of  capital,  which 
means  the  same  thing  as  the  scarcity  of  means 
of  gratification  devoted  to  the  future.  Carver, 
on  the  contrary,  comes  to  the  conclusion  that 
it  is  the  result  of  the  abundance  of  these  grati- 
fications, the  consequence  of  a  sort  of  plethora 
of  saving.  The  true  place  which  the  facts, 
quite  correctly  observed  by  Carver,  occupy  in 
the  chain  of  causes  is  well  indicated  by  the 
following  parallel :  Just  as  a  rise  in  the  value 
of  money,  caused  by  a  money  stringency,  is 
accustomed  to  bring  forth  a  secondary  stream, 
which  tends  to  weaken  the  intensity  of  the 
stringency,  this  secondary  stream  being  due 


THE   ABSTINENCE   THEORY  6 1 

to  the  well-known  fact  that  the  high  purchas- 
ing power  of  money  attracts  to  the  mint 
quantities  of  precious  metals  which  had  till 
then  been  used  as  jewellery,  plate,  and  so  on, 
and  thereby  increases  the  supply  of  money,  — 
so  interest,  caused  by  scarcity  of  capital,  by 
the  very  fact  of  its  existence  produces  a 
secondary  movement  which  tends  to  modify 
its  own  magnitude  by  causing  an  extension 
of  saving  beyond  the  point  at  which  it  would 
otherwise  have  stopped.  Now,  one  is  no  more 
correct  in  regarding  the  over-saving  caused  by 
the  existence  of  interest  and  the  accompanying 
fact  of  diminished  final  utility  as  the  principal 
power  which  produces  interest  and  fixes  its 
rate  than  he  would  be  in  considering  the  in- 
creased output  of  gold  and  silver  coins  as 
the  real  cause  of  the  rise  in  the  value  of  gold. 
So  far,  therefore,  as  the  subject  of  "  ab- 
stinence "  comes  under  consideration  in  the 
explanation  of  interest,  I  think  I  must  give 
the  older  interpretation  of  the  abstinence 
theory,  at  least  relatively,  the  preference  over 
Carver's  new  one.  The  former  at  least  had 
in  view  the  correct  fundamental  phenomenon 


62          RECENT   LITERATURE   ON   INTEREST 

which  really  cooperates  as  a  primary  force  in 
the  causation  of  interest,  though  it  is  mistaken 
in  interpreting  and  representing  the  manner 
of  that  cooperation.  Carver,  on  the  contrary, 
has  been  misled  by  an  ingenious  but  erroneous 
combination  of  ideas,  and  has  taken  the  wrong 
track,  in  that  he  pursues  a  phenomenon  which 
is  merely  an  accompaniment  and  a  result  of 
interest  instead  of  its  real  cause.1 

1  It  is  interesting  to  observe  that  Carver,  like  Macfarlane,  re- 
gards my  own  interest  theory  as  in  substance  an  abstinence 
theory  (with  elements  of  the  theory  of  productivity  added), 
agrees  with  it  in  substance,  and  believes  that  he  has  presented  it 
in  a  more  intelligible,  and  in  some  respects  a  more  correct,  way. 
"  With  certain  corrections,  which  will  be  noticed  later,"  he  says, 
speaking  of  my  theory,  "  his  theory  may  be  regarded  as  correct ; 
but  it  is  to  be  hoped  that  the  interest  problem  can  be  explained 
upon  principles  more  easily  understood  by  the  average  reader " 
(p.  44).  His  own  and  Macfarlane's  example,  in  addition  to 
the  eminently  sagacious  and  yet  unsatisfactory  explanations  of 
prominent  scientists  like  Jevons  and  Marshall,  furnishes  an 
exceedingly  instructive  illustration  of  the  manifold  ramifications 
of  which  the  conception  of  the  apparently  simple  relation  of  pres- 
ent and  future  is  capable.  It  also  shows  that  it  is  no  superfluous 
pedantry  on  my  part  if  in  criticism  and  in  positive  theory  I  do 
not  rest  satisfied  with  mere  references  to  the  "  prospectiveness  " 
and  "productiveness"  of  capital,  but  insist  that  these  notions 
shall  receive  a  perfectly  definite  meaning,  one  by  which  alone 
they  are  capable  of  fitting  into  a  really  decisive  and  essentially 
and  logically  correct  explanation  of  our  phenomenon. 


CHAPTER  V 

LABOUR  THEORIES 

IN  my  "Capital  and  Interest"  (Part  I)  I 
have  described  three  different  types  of  the 
labour  theory.  The  first  of  these,  which  in 
former  times  was  represented  by  James  Mill 
and  McCulloch,  so  far  as  I  know  has  found 
no  representative  in  recent  times,  and  may, 
therefore,  be  considered  as  dead  and  buried.1 

The  second  type,  the  French  form  of  the 
labour  theory,  which  regards  interest  as  the 
compensation  for  the  moral  effort  of  saving, 
so  far  as  I  can  perceive,  has  received  no  new 
reinforcements,  though  it  holds  its  own  within 
the  narrow  circle  of  its  former  adherents. 

As  for  the  third  form  of  this  theory,  that 
which  declares  interest  to  be  a  kind  of  official 

1  Though  Giddings's  theory,  which  we  have  briefly  considered 
in  another  place  (see  above,  p.  n),  bears  a  certain  resemblance 
to  this  type,  yet  his  standpoint  is  theoretically  so  different  and 
so  much  more  advanced  that  I  preferred  to  range  his  theory  in 
another  and  more  modern  group. 

63 


64          RECENT   LITERATURE   ON   INTEREST 

income  paid  to  the  class  of  capitalists  as  a 
salary  for  the  social  function  of  accumulating 
and  employing  capital,  it  may  be  observed  as 
a  remarkable  literary  fact  of  the  most  recent 
times,  that  Adolf  Wagner,  whom  I  have  con- 
ditionally ranged  in  this  group,  has  now 
emphatically  declared  that  he  does  not  accept 
the  labour  theory  as  a  sufficient  theoretical 
explanation  of  the  phenomenon  of  interest, 
and  that  those  expressions  of  his  which  re- 
semble the  process  of  thought  peculiar  to 
this  theory  relate  only  to  the  socio-political 
view  of  interest,  that  is,  to  the  question  of  its 
justification.  Regarding  the  peculiarly  theo- 
retical problem  of  interest  Wagner  declares 
himself  in  agreement  with  the  essential  points 
of  my  explanation.1  Stolzmann,2  on  the  other 
hand,  has  accepted  and  elaborately  defended 
this  type  of  the  labour  theory.  Since  his  work 
exhibits  many  original  features,  and  certainly 
represents  the  most  carefully  and  closely 
thought-out  form  of  this  theory,  a  somewhat 

1  "  Grundlegung,"  3d  ed.,  Pt.  II,  p.  289  sq. 

2  "  Die  sociale  Kategorie  in  der  Volkswirtschaftslehre,"  Berlin, 
1896. 


LABOUR  THEORIES  65 

more  thorough   exposition   and   consideration 
of  it  is  in  place  here. 

Stolzmann  makes  the  theory  of  value  his 
starting-point.  He  represents  a  peculiar  modi- 
fication of  the  labour-cost  theory.  According 
to  him  the  exchange  value  of  goods  is  deter- 
mined by  their  labour-cost,  but  not,  as  Ricardo 
and  the  Socialists  teach,  by  the  quantity  of 
labour  employed  in  the  production  of  goods, 
nor,  as  other  theorists  have  been  teaching,  by 
the  amount  of  displeasure  and  trouble  con- 
nected with  that  labour;  but  he  holds  that 
labour  is  the  decisive  cause  of  value,  because 
and  to  the  extent  that  it  requires  remuneration, 
and  that,  therefore,  it  is  not  so  much  labour 
itself,  as  its  wages,  that  determine  value  (p. 
335).  But  wages  themselves,  and  this  is  the 
second  fundamental  premise  of  Stolzmann's 
system,  are  determined  by  the  relative  power 
of  social  groups  (Sociale  Machtverhaltnisse). 
The  labourer  must  live.  In  every  period  of 
his  existence  he  needs  a  certain  quantity  of 
provisions  (this  term  being  used  in  its  widest 
sense),  and  this  quantity  Stolzmann  calls  the 
"  unit  of  provisions "  (Nahrungsmitteleinheit). 


66          RECENT   LITERATURE   ON   INTEREST 

To  this  notion  he  attributes  extraordinary  im- 
portance. It  appears  to  him  to  be  an  indis- 
pensable, intermediary  link  in  the  formation 
and  determination  of  the  value  of  goods. 
Starting  from  the  widely  spread  notion  that 
individual  wants  are  incommensurable,1  he 
thinks  that  the  value  of  goods  cannot  be 
derived  from  or  measured  by  them;  that,  on 
the  contrary,  in  this,  as  in  every  other  scientific 
question,  man  with  all  his  needs  must  be  con- 
sidered as  a  single  whole,  as  the  unit  which 
influences  value  at  first  hand  (p.  264).  The 
process  by  which  value  is  determined,  there- 
fore, is  about  as  follows:  First  of  all,  the 
magnitude  of  "  the  unit  of  provisions "  which 
the  working-man  is  able  to  acquire  for  himself 
is  determined  by  social  forces.  This  unit  is 
not  a  fixed  quantity  established  by  physiology 
or  by  any  law  of  nature,  but  the  result  of  a 
social  struggle,  in  which  not  purely  economic 
causes,  but  the  relative  power  of  the  contend- 
ing forces  decides  what  quantity  of  provisions 

1 1  have  criticised  this  opinion  in  another  place  (Conrad's 
Jahrbucher,  N.F.,  Vol.  XIII,  p.  46  sq).  Here  I  wish  to  avoid 
criticism,  and  will  therefore  not  examine  the  point  further  at 
this  time. 


LABOUR  THEORIES  67 

the  labourer  obtains,  what  standard  of  life  he 
can  maintain.  From  the  magnitude  of  the 
unit  of  provisions  the  value  of  goods  is  derived 
by  the  simple  rule  that  a  product  is  always 
worth  as  many  units  of  provisions  as  there 
were  units  of  time  (for  example,  days  of  labour) 
or  aliquot  parts  of  units  of  time  required  for  its 
production. 

Stolzmann  develops  this  "  law  of  labour-cost," 
first  of  all,  for  a  hypothetical,  primitive  type  of 
society.  He  assumes  a  social  group  of  ten 
persons  who  procure  their  ten  units  of  pro- 
visions upon  a  common  plan  by  division  of 
labour.  They  are  supposed  to  be  equal  in  dili- 
gence and  ability,  and  each  of  them  applies 
himself  to  the  production  of  one  of  the  ten 
species  of  goods  of  which  every  unit  is  com- 
posed, and,  during  one  and  the  same  period, 
manufactures  ten  pieces  from  the  beginning  to 
the  end.  Under  these  circumstances,  Stolz- 
mann continues,  no  other  division  of  the  prod- 
uce could  take  place  than  that  based  on  the 
principle  that  each  should  receive,  for  the  unit 
of  labour  which  he  had  contributed  to  produc- 
tion, just  one  unit  of  provisions,  composed  of 


68          RECENT   LITERATURE   ON   INTEREST 

one  piece  of  each  of  the  ten  kinds;  and  the 
several  pieces  of  every  kind,  if  they  should  be 
exchanged  at  all,  would  be  exchanged  on  an 
equal  basis,  since  each  of  them  is  produced  by 
the  same  number  of  labour  units  and  repre- 
sents the  same  number  of  units  of  provisions. 
Why  ?  Because,  according  to  our  assumption, 
all  the  ten  partners  are  equipotent ;  no  one  of 
them  is  subjected  to  any  sort  of  compulsion  or 
coercion,  but  each  one,  by  threatening  to  "  run 
away,"  is  in  a  condition  effectually  to  oppose 
any  attempt  on  the  part  of  his  colleagues  to 
restrict  him  to  a  smaller  unit  of  provisions  or 
to  reward  him  according  to  a  worse  standard 
for  the  goods  produced.1 

With  certain  modifications  Stolzmann  then 
transfers  this  law  of  labour-cost,  made  plausible 
for  a  primitive  community,  to  developed  society. 
Here  distribution  is  by  far  more  complicated, 
partly  because  the  units  of  provisions  are 
not  nowadays  constituted  by  simply  bringing 
together  their  component  parts,  but  by  compli- 
cated processes  of  exchange,  and  partly  because 
labourers  are  not  the  only  participants  in  the 

1  pp.  31-36;  see  also  p.  304. 


LABOUR   THEORIES  69 

distribution  of  the  produce,  but  must  compete 
also  with  capitalists  and  landowners.  But  the 
essence  of  the  process  of  distribution  remains 
the  same.  Stolzmann  repeatedly  rejects,  with 
the  greatest  possible  emphasis,  the  idea  that 
each  of  the  agents  of  production  is  remuner- 
ated according  to  its  contribution  to  the  whole 
produce,  and  that  economic  causes  or  the  tech- 
nique of  production  are  decisive  in  the  deter- 
mination of  the  shares  in  distribution.  Indeed, 
his  entire  work,  as  its  very  title,  "  The  Social 
Category,"  shows,  is  an  attempt  to  prove  that 
the  actual  distribution  of  goods  at  the  present 
time  is  determined,  not  by  purely  economic,  but 
by  "  social  forces."  To  quote  some  character- 
istic sayings :  "  Power  alone,  the  laws  govern- 
ing distribution,  determine  the  magnitude  of 
the  shares  in  distribution"  (p.  41).  "  The  tech- 
nical contribution  of  the  factor,  nature,  differs 
very  materially  from  its  social  contribution  and 
share  of  income"  (p.  341  sq.).  "  Not  what  any 
agent  of  production  contributes  towards  the 
technique  of  production,  but  the  dividend 
which  can  and  must  be  given  to  its  proprietor 
for  its  surrender,  is  decisive  for  the  amount  of 


70          RECENT   LITERATURE   ON   INTEREST 

his  share  in  the  distribution "  (p.  338).  The 
value  of  the  whole  is  distributed  among  the 
proprietors  of  the  three  factors  of  production, 
not  in  proportion  to  the  share  which  each  has 
had  in  the  production,  but  "according  to  princi- 
ples essentially  different,  i.e.  according  to  the 
relative  amounts  of  social  power  each  exerts  " 
(p.  61),  and  in  the  following  manner:  The 
working-man  desires  and  needs  his  "worker's 
unit  of  provisions."  How  large  this  is  does 
not  depend,  as  other  theorists  believe,  on  the 
productive  effect  of  labour,  but  essentially  on 
"  the  existing  social  class  relations."  "  The 
traditional  standard  of  life  of  the  working 
classes,  their  power,  their  covetousness,  and  the 
esteem  they  enjoy  as  fellow-men,  according  to 
the  opinions  regarding  human  dignity  and  the 
precepts  of  ethics  and  religion  held  at  the 
time,"  determine  the  rate  of  wages  they  can 
obtain  (p.  334).  But  the  capitalist  also  desires 
to  live.  He  desires  and  needs  his  "capitalist's 
unit  of  provisions,"  the  amount  of  which,  like 
that  of  the  worker's  unit,  is  determined  by 
social  forces,  such  as  the  level  of  culture,  the 
extent  of  their  fashionable  wants,  their  previous 


LABOUR  THEORIES  71 

education,  the  extent  to  which  they  cooperate 
through  unions,  trusts,  and  syndicates,  the  inter- 
vention of  the  State,  and  the  like  (p.  371  sg.). 
Particularly  decisive  for  the  rate  of  profit  is  the 
standard  of  life  of  the  "  last,"  that  is,  the  least 
important  capitalist,  as  determined  by  such 
social  conditions;  in  other  words,  to  capital 
must  be  given  such  a  per  cent  of  profit  as  will 
yield  the  capitalist's  unit  of  provisions  even  to 
the  least  important  capitalist  who  can  just  stand 
the  competition  but  is  still  indispensable  to  the 
production  of  the  supplies  needed  by  society. 
Thus  are  determined  the  elements  of 
exchange  value  in  modern  society.  The 
exchange  value  of  goods  fixes  itself  at  that 
level  which  is  required  to  remunerate  the 
labour  employed  in  their  production  at  the  rate 
of  wages  enforced  by  the  labourers,  and  the 
cooperating  capital  at  the  rate  of  profit  neces- 
sary for  supplying  the  capitalist's  unit  of  pro- 
visions. The  landowner,  on  the  contrary, 
appears  merely  as  a  "  residual  claimant " ;  he 
receives  as  the  rent  of  land  "  the  portion  which 
remains  after  deducting  the  two  first  fixed 
quotas  from  the  total  receipts." 


72          RECENT  LITERATURE  ON   INTEREST 

But  how  can  this  theory  of  value  claim  to 
be  a  "labour-cost  theory,"  when  it  recognizes 
as  an  independent  element  in  the  formation 
of  value,  besides  labour  and  the  wages  of 
labour,  also  the  service  of  the  capital  which 
must  be  remunerated  ?  This  difficulty  is  sur- 
mounted by  declaring  the  work  of  capitalists 
remunerated  by  interest  to  be  a  kind  of  labour. 
At  the  very  close  of  his  systematic  presenta- 
tion, Stolzmann  makes  this  declaration  when 
he  explains  profits  as  the  "socially  necessary 
remuneration  for  the  socially  indispensable 
function  of  forming  and  employing  capital." 
This,  he  says,  is  no  new  idea,  but  one  that 
agrees  in  its  essence  with  that  conception 
which  we  have  designated  as  the  German 
type  of  the  labour-cost  theory  of  interest. 
Stolzmann  quotes  with  approval  an  utterance 
of  Adolf  Wagner,  according  to  which  the 
"  labour "  constituting  the  cost  of  production 
comprises  also  the  necessary  services  of  pri- 
vate capitalists  and  employers,  and  emphati- 
cally declares  that  upon  this  idea  he  wishes 
to  base,  not  merely,  as  in  Wagner's  case,  the 
social  and  political  justification  of  interest,  but 


LABOUR  THEORIES  73 

also  its  theoretical  explanation  (p.  421  sg.). 
Stolzmann  did  not  keep  in  sight  during  the 
whole  course  of  his  work  the  necessary  conse- 
quences of  this  theory.  There  are  passages 
in  which  he  seems  to  hold  that  the  labour- 
cost  which  determines  value,  consists  of  the 
"  worker's  unit  of  provisions "  in  a  narrow 
sense.1  But  Stolzmann's  real  view  does  not 
seem  to  me  to  be  represented  by  such  casual 
utterances  as  are  inconsistent  with  his  princi- 
ples, but  rather  by  such  statements  as  promote 
the  capitalist's  function  to  the  dignity  of  a 
species  of  labour  in  need  of  remuneration. 
In  my  opinion  Stolzmann's  theory  in  all  its 

1  E.g.  p.  330,  where  he  says,  Capital  is  identical  in  value  with 
the  labour-cost  employed  in  it,  and  labour-cost  is  identical  with 
the  workers'  units  of  provisions  paid  as  wages  to  the  labourers. 
Similarly,  pp.  372  and  378,  where  he  works  it  out  numerically.  I 
observe  also  that  these  utterances  are  not  based  upon  the  as- 
sumption of  a  primitive,  non-capitalistic  state  of  society,  but  that 
the  existence  of  capital  in  a  developed  community  is  assumed. 
In  my  review  of  Stolzmann's  book,  in  the  Zeitschrift  fur  Volks- 
wirtschaft,  Socialpolitik  und  Verwaltung,  Vol.  VII,  p.  424,  it  was 
passages  like  these  which  caused  me  to  reproach  Stolzmann  with 
ignoring  the  influence  of  unequal  expenditures  of  time  on  the 
formation  of  value.  Upon  renewed  reflection,  however,  I  think 
that  these  utterances  were  mere  oversights,  and  that  Stolzmann's 
real  opinion  is  the  one  expounded  in  the  text. 


74         RECENT  LITERATURE   ON   INTEREST 

parts  is  open  to  numerous  objections.  What 
I  have  said  in  the  proper  place  against  labour 
theories  in  general,  naturally  applies  to  Stolz- 
mann's  theory  as  well  as  the  others,  and  I  will 
not  repeat  it  here.  I  will  content  myself  with 
pointing  out  the  most  striking  weaknesses  of 
the  special  form  which  he  has  given  to  the 
theory. 

First  of  all,  the  very  foundation  of  the  whole 
system,  the  labour-cost  theory  of  value,  is  with- 
out any  solid  basis.  He  endeavours  to  make 
plausible  his  contention  that  labour-cost  is  the 
only  possible  foundation  of  value  by  an  example 
taken  from  primitive  society.  In  this  he  com- 
mits a  mistake,  peculiarly  interesting  on  ac- 
count of  its  relation  to  a  previous  discussion 
of  his.  He  had  justly  blamed  Ricardo  for 
deducing  his  well-known  law  of  value  from 
an  arbitrarily  constructed  primitive  type  of 
society,  without  noticing  the  fact  that  the  cor- 
respondence of  value  with  the  quantity  of 
labour  employed  was  only  the  result  of  the 
accidental  circumstances  of  his  arbitrarily  con- 
structed type  of  primitive  society.  But  in  the 
same  breath  Stolzmann  commits  precisely  the 


LABOUR   THEORIES  75 

same  error  by  the  threefold  supposition  that 
all  the  members  of  a  primitive  society  are 
equally  industrious  and  skilful,  and  apply 
their  labour  during  productive  periods  of  the 
same  length.1  He,  too,  has  eliminated  from 
his  example  any  circumstance  that  might  cause 
the  value  of  the  product  to  deviate  from  paral- 
lelism, not  only  with  Ricardo's  labour-quanti- 
ties, but  also  with  his  own  labour-costs,  or 
force  it  to  conform  to  a  standard  other  than 
this.  And  for  the  very  same  reason  Stolz- 
mann's  key  to  distribution  is  only  ua  chance 
peculiarity  of  this  special  hypothesis,"  and  no 
universally  valid,  theoretical  fact.  Had  Stolz- 
mann  introduced  into  his  hypothesis  unequally 
skilful  or  unequally  industrious  partners,  he 
would  certainly  have  quickly  convinced  him- 
self that,  even  in  the  absence  of  relations  tend- 

1  This  third  supposition  is  not  made  expressly,  but  it  is  clearly 
implied  in  the  assumption,  on  the  one  hand,  that  every  partner 
produces  one  commodity  "from  beginning  to  end,"  and  thus 
measures  off  the  entire  production  period,  and,  on  the  other 
hand,  that  "  for  every  period  of  consumption  "  the  same  number 
of  pieces  of  each  kind  is  "  available  for  consumption,"  so  that 
evidently  the  periods  of  production  and  the  periods  of  consump- 
tion must  be  equal  to  each  other.  A  passage  confirming  this 
view  may  be  found  on  page  32. 


76    RECENT  LITERATURE  ON  INTEREST 

ing  to  coerce  the  labourer,  full  and  equal  units 
of  provisions  are  not  always  to  be  realized, 
and  that  a  very  important  part 1  of  what  he  is 
inclined  to  treat  under  the  head  of  "force" 
is  derived  from  no  other  source  than  the 
economic  efficiency  of  the  respective  factors 
of  production.  It  is  very  easy  to  see  why  the 
threat  of  an  idle  or  unskilful  worker  to  "run 
away  "  will  exercise  a  much  less  efficient  power 
in  securing  for  him  a  large  unit  of  provisions 
than  the  same  threat  of  a  skilful  and  industri- 
ous worker! 

The  situation  is  precisely  the  same  regard- 
ing the  different  lengths  of  the  periods  of 
time  which  intervene  between  the  beginning 
of  labour  and  the  acquisition  of  its  fruits, 
and  during  which  every  one  must  wait.  In 
Stolzmann's  primitive  society  no  regard  for 
these  intervals  of  time  can  interfere  with 
the  labour-costs  key  which  he  has  discovered, 

1  A  very  important  part,  but  not  the  whole.  Upon  the  prob- 
lems which  exist  along  this  line,  and  which  still  persist  in  spite  of 
the  solution  attempted  by  Stolzmann  in  his  one-sided  exaggera- 
tion, I  have  expressed  myself  in  my  above-mentioned  review 
of  his  book,  Zeitschrift  fur  Volkswirthschaft,  Socialpolitik  und 
Verwaltung,  Vol.  VII,  p.  425  sq. 


LABOUR   THEORIES  77 

since  they  are  assumed  to  be  the  same  for  all 
labourers  and  for  all  sorts  of  production,  thus 
mutually  offsetting  each  other.  But  Stolzmann 
cannot  and  evidently  does  not  claim  that  this 
equality  of  intervals  of  time  is  actually  to  be 
met  with  in  real  life ;  certainly  he  will  not  claim 
that  it  is  so  universally  met  with  that  it  may 
be  regarded  as  a  typical,  normal  case,  from 
which  a  universally  valid  law  may  be  derived. 
Just  as  little  can  he  assume  without  proof 
that  the  diversity  of  these  intervals  is  without 
influence  on  the  formation  of  value.  But  he 
actually  does  make  this  assumption. 

He  touches  upon  this  question  in  that 
portion  of  his  book  (p.  303)  in  which  he  states 
that  the  work  done  in  advance  is  substantially 
equal  to  that  done  afterward,  and  that  the 
difference  between  these  kinds  of  labour  is 
"nothing  but"  a  difference  in  time,  which  in 
his  primitive  community  exerts  "  no  appreci- 
able influence  upon  value  and  distribution." 
As  the  same  quantity  of  labour  is  at  stake  in 
both  cases,  that  performed  in  advance  and 
that  performed  afterward  must  be  regarded 
as  equal  for  purposes  of  distribution.  Ac- 


78          RECENT  LITERATURE   ON   INTEREST 

cording  to  his  notion,  time  can  play  a  part  in 
the  formation  of  value  and  in  distribution  in 
the  form  of  labour-time  only,  and  hence  "  the 
value  to  be  allotted  to  the  several  labourers 
as  multiples  or  aliquot  parts  of  units  of  pro- 
visions must  be  proportioned  to  the  length 
of  time  which  is  put  in  by  the  several  la- 
bourers," without  any  reference  to  the  ques- 
tion whether  the  labour  was  performed  in 
advance  or  afterward.  I  think  all  this  is 
simply  a  presumption  contrary  to  facts,  which 
reminds  us  of  Marx's 1  unproved  denial  of  the 
influence  of  the  time  spent  in  waiting,  and 
which  indicates  a  petitio  principii  invoked 
by  both  authors  in  favour  of  the  principle  of 
value  which  each  holds.2 

1  See  my  "  Geschichte  und  Kritik  der  Capitalzins-Theorien," 
2ded.,  p.  554^. 

2  In  a  strange  way   Stolzmann  tries  to  turn  my  argument 
against  me,  and  reproaches  me  with  a  petitio  principii,  notwith- 
standing my  rather  explicit  demonstration  that  not  only  the  time 
of  labour  but  also  the  time  of  waiting  is  a  circumstance  by  no 
means  irrelevant  in  the  explanation  of  remuneration  and  valua- 
tion.    I  do  not  intend  here  to  make  a  rejoinder,  for  which,  per- 
haps, a  more  suitable  place  may  be  found  in  the  second  volume 
of  this  work.      I  will  only  remark  that  all  the  attempts  of  Stolz- 
mann to  explain  away  the  necessity  of  "waiting"  by  a  skilful  in- 
terlapping  of  stages  of  production  and  needs  ("  Sociale  Kategorie," 


LABOUR  THEORIES  79 

The  unnatural  character  of  Stolzmann's  con- 
ception, resulting  from  the  fact  that  he  stamps 
a  manifest  proprietor's  revenue  as  a  species  of 
wages  of  labour,  I  need  not  demonstrate  again 
after  all  that  I  have  said  on  this  point  in  my 
treatment  of  labour  theories  in  general. 

Stolzmann  seems  to  me  to  be  wholly  in 
error  in  his  attempt  to  attribute  to  the  capi- 
talist's unit  of  provisions  the  importance  of  a 
determining  cause  in  the  processes  of  distri- 
bution and  the  formation  of  capital.  If  there 
is  anything  that  is  not  the  cause  of  the 
existence  or  of  the  height  of  interest,  but  its 
effect,  that  is  surely  the  standard  of  life  of 
capitalists.  There  is  no  minimum  of  property 
with  regard  to  which  one  could  say  that  any 

p.  304  sy.j  especially  307,  308,  313),  even  under  the  hypothesis  of 
longer  periods  of  production,  seem  to  me  utterly  fallacious  and 
futile.  Even  the  most  skilful  manipulation  cannot  make  a  cover 
longer  than  it  is,  and  if  Stolzmann  honestly  believes  that  it  is 
legitimate  to  assume  that  even  then  "  a  sufficient  quantity  of  pres- 
ent goods  will  always  be  ready  for  immediate  consumption" 
(p.  313),  so  that  society  will  be  relieved  of  the  burden  of  waiting, 
this  "  sufficient  quantity  of  present  goods "  in  his  process  of 
thought  plays  the  rdle  of  a  deus  ex  machina.  Their  "  always 
being  ready "  would  certainly  solve  all  difficulties,  but  neither 
their  "  readiness  "  nor  their  certain  "  sufficiency  "  is  explained. 


80    RECENT  LITERATURE  ON  INTEREST 

technical  need  of  production  or  any  other 
socio-economic  necessity  requires  that  it  must 
support  its  owner  with  a  fixed  rate  of  income. 
A  nation  needs  capital,  and  so  long  as  the 
formation  of  capital  is  predominantly  effected 
by  private  economy  it  also  needs  capitalists ; 
but  it  is  by  no  means  in  need  of  these  to  such 
an  extent  that  it  must  maintain  any  person  or 
any  class  of  persons  by  means  of  a  fixed  rate  of 
income  on  capital.  Whoever  possesses  too  little 
capital  of  his  own  to  enable  him  to  live  on  the 
revenue  derived  from  it  in  the  manner  which 
he  considers  required  by  his  rank  is  not  on 
this  account  obliged  to  withdraw  from  his 
"  class  "  (if  by  "  class  "  be  not  meant  the  group 
of  perfectly  idle  capitalists,  a  group  certainly 
not  absolutely  necessary  to  the  economy  of  any 
nation)  or  to  be  deprived  of  his  economic 
existence,  but  he  can  very  well  earn  what  is 
lacking  by  employing  or  augmenting  his  per- 
sonal activity.  In  fact  this  is  done  by  the 
proprietor  of  a  small  capital  who  seeks  for 
employment  as  an  official  or  a  physician  or  a 
menial  servant,  and  the  same  thing  is  done 
by  the  employer  who  does  not  confine  himself 


LABOUR   THEORIES  8 1 

to  the  general  direction  of  his  enterprises, 
but  works  in  it  with  his  own  hands,  and  by 
performing  the  functions  of  a  director  or  fore- 
man or  a  simple  workman  earns  in  his  own 
enterprise,  as  it  were,  also  a  salary  or  a  wage. 
Stolzmann  himself  had  observed  a  number 
of  difficulties  connected  with  his  doctrine  re- 
garding the  influence  of  the  unit  of  provisions 
of  the  last  capitalist,  namely,  that  capitalists, 
and  especially  the  least  important  of  them, 
such  as  labourers,  artisans,  or  officials,  are  also 
people  who  need  not  live  on  the  revenue  of 
their  capital ;  that  the  capitalist  is  not  identical 
with  the  employer;  that  the  idle  capitalist  is 
not  a  social  necessity ;  that  if  the  entrepreneur 
rather  than  the  money-lender  be  regarded  as 
the  decisive  personality,  he  is  not  accustomed 
to  work  with  his  own  capital  alone,  so  that 
in  this  case  the  capital  of  the  last  employer 
would  not  coincide  with  the  amount  of  capital 
employed  in  the  last  enterprise,  and  so  on. 
Stolzmann  accompanies  the  review  of  these 
difficulties  with  a  very  frank  recognition  of 
their  magnitude.  He  is  forced  to  admit  that 
when  one  faces  the  complete  reality,  "difficul- 


82          RECENT   LITERATURE  ON   INTEREST 

ties  quite  insuperable  "  stand  in  the  way  of  his 
conception,  and  that  especially  the  relation, 
lying  at  the  basis  of  his  conception,  between 
the  material  and  the  personal  factor,  that  is, 
between  capital  as  the  factor  of  production, 
and  the  personal  proprietor  of  the  same,  the 
capitalist,  "  seems  either  not  to  exist  or  to  be 
very  accidental  and  loose"  (p.  380).  In  dis- 
cussing details  he  finds  one  of  these  difficul- 
ties "  very  serious,"  at  first  sight  even  "  almost 
overwhelming " ;  another  is  characterized  as 
"still  much  worse";  again  another  causes  him 
"  almost  to  doubt "  the  exactness  of  his  theory ; 
while  still  another  makes  it  appear  "absurd," 
and  so  on.  Nevertheless  he  thinks  himself 
able  to  steer  his  course  among  all  the  cliffs 
which  start  up  in  his  way  by  means  of  a  sys- 
tem of  artificial  explanations  and  bold  deduc- 
tions, with  which,  I  at  least  believe,  only 
one  who  possesses  as  great  a  predilection  for 
the  standpoint  defended  by  Stolzmann  as  the 
author  himself  will  be  inclined  to  be  satisfied. 
I,  therefore,  think  a  detailed  criticism  unneces- 
sary, and  content  myself  with  the  two  following 
remarks :  — 


LABOUR   THEORIES  83 

First,  Stolzmann  has  not  kept  in  view  a  cer- 
tain difficulty  which  would  probably  have  de- 
monstrated the  untenableness  of  his  standpoint 
more  strikingly  than  anything  else  could  have 
done.  This  difficulty  lies  in  the  circumstance 
that  the  magnitude  of  the  entrepreneur's  capi- 
tal varies  greatly,  not  only  between  enterprises 
of  various  sizes  within  the  same  branch  of 
business,  but  also  for  technical  reasons  between 
one  branch  of  production  and  another,  e.g.  be- 
tween a  gun  foundery  and  the  trade  of  a  crafts- 
man or  a  pedler,  and  that  the  magnitude  of 
the  capital  of  the  smallest  entrepreneur l  capable 
of  competition,  which  according  to  Stolzmann 
is  decisive  for  the  capitalist's  unit  of  provisions, 
is  extraordinarily  small.  A  tailor  in  some  little 
place  may  carry  on  quite  a  prosperous  enter- 

1  The  notion  of  the  "  last  employer  "  is  somewhat  ambiguous 
in  itself  and  also  in  Stolzmann's  book.  It  may  refer  to  the  capi- 
talist who  by  severe  economy  is  just  able  to  endure  competition 
or  to  the  smallest  capitalist,  i.e.  the  one  working  prosperously 
with  the  smallest  capital.  The  whole  trend  of  Stolzmann's 
teaching,  as  well  as  numerous  expressions  pointing  in  this  direc- 
tion (e.g.  pp.  381,  383,  390  sq.)  396  sg.),  leave  no  doubt  in  my 
mind  that  the  second  interpretation  is  the  one  Stolzmann  had  in 
mind.  To  be  sure,  in  one  instance,  in  a  parenthetical  phrase 
he  expressly  explains  "  the  smallest "  as  the  "  least  favoured  " 
undertaking  (p.  396). 


84          RECENT   LITERATURE   ON   INTEREST 

prise  on  the  basis  of  a  capital  of  100  florins, 
either  of  his  own  or  partly  or  altogether  bor- 
rowed, but  will  any  one  seriously  claim  that 
the  level  of  profits  in  a  nation  or  the  rate  of 
interest,  let  us  say  the  question  of  its  being 
fixed  at  4  or  4^-  per  cent,  will  be  determined 
by  the  fact  that  this  man  and  such  as  he  need 
for  a  living  such  as  is  usual  in  their  class  4^ 
instead  of  4  florins  per  annum !  In  order  to 
forestall  any  objection,  let  me  add  one  other 
remark.  A  doubt  might  arise  as  to  whether, 
according  to  Stolzmann's  theory,  the  capitalist 
employer's  unit  of  provisions  must  be  exclu- 
sively supplied  from  profits  on  capital,  or 
whether  in  the  calculation  the  whole  income  of 
the  employer  is  taken  into  account.  Practically 
this  difference,  especially  important  in  the  case 
of  the  smaller  and  least  important  employers, 
would  show  itself  in  the  taking  or  not  taking 
into  account  of  those  parts  of  revenue  which 
are  earned  by  personal  labour  such  as  could  be 
performed  by  paid  employers  or  helpers. 

Stolzmann  does  not  expressly  decide  this 
question  in  his  final  and  formal  definition  of 
the  "last  capitalist."  He  defines  this  person- 


LABOUR   THEORIES  85 

age  (p.  396)  as  the  "proprietor  of  a  stock  of 
capital  by  means  of  which  and  the  credit  based 
on  it  he  is  able  to  establish  and  prosperously  to 
carry  on  the  last  still  competing  enterprise  in 
such  a  way  that  by  means  of  the  value  of  its 
produce  he  may  be  able  to  defray  the  expense 
not  only  of  the  wear  and  tear  of  capital  and  of 
the  wages  of  labour,  but  also  of  the  minimum 
standard  of  life  usual  with  employers  of  the 
time,  and  of  the  interest  on  the  capital 
borrowed."  With  this  definition  one  must  still 
ask  whether  Stolzmann  means  by  the  "  wages 
of  labour  "  only  those  paid  to  other  men  or  also 
those  earned  by  the  employer  himself.  In  my 
opinion,  the  whole  tendency  of  Stolzmann's 
theory  here  demands  the  narrower  interpreta- 
tion of  the  term  "wages  of  labour,"  so  that 
wages  earned  by  the  employer  himself  are  to  be 
considered  not  as  a  part  of  the  expense  to  be 
deducted  beforehand,  but  as  a  part  of  the  capi- 
talist's unit  of  provisions  remaining  after  the 
deduction  of  expenses.  But  Stolzmann's  theory 
comes  to  grief  whichever  signification  he 
adopts.  If  he  does  not  choose  to  reckon,  in 
the  socially  necessary  unit  of  provisions,  the 


86          RECENT   LITERATURE   ON   INTEREST 

personal  earnings  of  the  entrepreneur,  it  means 
that  in  our  neither  fanciful  nor  impossible  ex- 
ample of  the  tailor  with  100  florins  of  capital 
and  4  or  even  10  or  20  florins  of  profits,  he 
maintains  that  the  standard  of  life  usual  to  the 
class  of  poor,  independent  craftsmen  can  be 
nowadays  maintained  with  4,  10,  or  20  florins 
yearly;  or,  in  manifest  opposition  to  facts,  that 
enterprises  of  such  insignificance  as  not  to 
afford  a  bare  competence  without  the  master's 
manual  labour  cannot  exist;  in  other  words, 
that  the  economy  of  nature  requires  that  even 
the  class  of  the  smallest  entrepreneurs  shall  be 
made  up  of  capitalist  employers  who  do  not 
themselves  labour.  But  if  Stolzmann  chooses 
to  count  these  earnings  as  a  part  of  the  unit  of 
provisions,  not  as  wages  of  labour  but  as  profits 
of  capital,  he  arrives  necessarily  at  the  absurd 
conclusion  that  our  little  tailor,  who  certainly 
earns  by  his  business  every  year  more  than 
some  hundred  florins,  receives  from  his  capital 
of  100  florins  a  profit  of  some  hundreds  per 
cent,  and  that  this  monstrous  rate  of  profit  is 
to  be  regarded  as  the  general  one  of  that  time 
and  nation  as  determined  by  the  last  capitalist's 


LABOUR   THEORIES  87 

earnings.  Or,  finally,  he  may  choose  to  count 
the  personal  earnings  of  the  last  capitalist  as  a 
part  of  his  unit  of  provisions,  and  at  the  same 
time  recognize  them  as  wages.  I  may  observe, 
by  the  way,  that  this  is  most  likely  Stolzmann's 
meaning,  although  on  one  occasion  and  in  a 
passage  which  purports  to  be  a  definition,  he 
expresses  himself  in  a  manner  incompatible 
with  this  interpretation.1  But  if  this  be  Stolz- 
mann's opinion,  he  has  evidently  completely 
failed  in  his  explanation  and  demonstration. 
He  wished  to  show  that  the  rate  of  profits  is 
determined  by  the  capitalist's  unit  of  provi- 
sions. But  if,  besides  the  profit  of  capital,  some 

1  On  page  396  may  be  found  the  following  passage  emphasized 
by  italics :  "  The  rate  of  profit  which  the  last  entrepreneur 
receives  is  the  percentage  which  expresses  the  numerical  pro- 
portion of  his  own  capital  to  the  socially  necessary  entrepreneur's 
unit  of  provisions."  Here  the  rate  of  profit  is  deduced  from  the 
proportion  of  the  whole  entrepreneur's  unit  to  his  own  capital, 
and  thereby  this  entire  unit  is  regarded  as  profits.  On  the  con- 
trary, his  remark  that  interest  sometimes  constitutes  a  deter- 
minate fraction  of  profits  (397),  and  that  "great  and  small 
capitalists  receive  the  same  percentage  of  profit "  (380),  leads  to 
the  conclusion  that  he  was  not  willing  to  regard  the  whole  income 
of  an  employer  as  profits  on  capital,  but  as  a  heterogeneous  aggre- 
gate including  some  earnings  of  labour.  However,  on  this,  as 
well  as  many  other  decisive  points,  Stolzmann's  theory  is  obscure. 


88          RECENT   LITERATURE   ON   INTEREST 

other  thing,  such  as  the  earnings  of  labour,  is 
or  can  be  included  in  the  unit  of  provisions, 
even  if  this  unit  were  itself  real,  and  were  able 
to  determine  anything  whatever,  at  best  it 
could  only  determine  how  much  the  smallest 
capitalist-employer  must  receive  from  two  dif- 
ferent sources  together;  but  as  these  two 
sources  can  be  combined  in  all  possible  propor- 
tions, the  part  which  profits  have  in  that  mix- 
ture,—  the  real  object  of  the  whole  inquiry, — 
remains  completely  undetermined.  Moreover, 
Stolzmann  has  not  even  tried  to  demonstrate,  — 
what  indeed  cannot  be  demonstrated  at  all,  — 
that  between  these  two  sources  there  must  be 
some  socially  necessary  proportion,  and  that 
the  share  of  the  capitalist  must  accordingly  be 
a  quantity  determined  by  a  social  necessity 
and  itself  ruling  the  whole  capital  market. 
Such  an  attempt  at  demonstration,  not  to  speak 
of  other  difficulties,  would  be  refuted  by  the 
simple  case  of  the  little  tailor  which  shows  that 
the  part  which  capital  occupies  in  the  total 
income  of  the  smallest  entrepreneur  is  rela- 
tively trifling,  a  veritable  quantite  neglige- 
able ;  and  one  could  not  avoid  the  absurdity 


LABOUR   THEORIES  89 

that  to  gradations  within  this  evidently  insig- 
nificant quantite  negligeable  must  be  ascribed 
the  all-decisive  role  in  the  world  of  capital. 

In  conclusion  I  must  not  omit  to  mention 
that  Stolzmann's  treatment  in  individual  cases 
often  attracts  me  by  its  freshness  and  original- 
ity, as  well  as  by  the  evident  energy  of  his 
spirit  of  investigation;  but  as  for  its  positive 
results,  I  regard  them  as  so  unsatisfactory  that 
I  do  not  expect  them  to  play  an  influential 
part  in  the  future  history  of  theories  of  interest. 


CHAPTER  VI 

THE   PRODUCTIVITY   THEORIES 

THE  number  of  those  theorists  who  in  recent 
times  have  professed  in  a  pure  or  an  eclectic 
form  an  indirect  productivity  theory  is  far  from 
being  insignificant.  Without  any  pretension 
to  completeness,  I  may  mention  from  the  litera- 
ture of  the  Romance  nations  Maurice  Block1 
and  Maffeo  Pantaleoni,2  from  the  Anglo- 
American  literature  Francis  Walker,3  and  from 
the  German  once  more  Dietzel,  who  with  a 
peculiarly  eclectic  method  would  explain  a 
portion  of  the  phenomena  of  interest  by  the 

1  "  Progres  de  la  science  e'conomique  depuis  Ad.  Smith  "  (Paris, 
1890),  II,  pp.  319  sq.,  328,  335  sq. 

2"Principii  di  Economia  pura,"  Florence,  1889  (2d  ed.  un- 
changed, 1894),  p.  301.  Pantaleoni's  theory,  but  briefly  indi- 
cated, seems  to  move  wholly  in  the  course  of  Wieser's  views, 
which  will  be  more  amply  criticised  further  on. 

8  Quarterly  Journal  of  Economics,  July,  1892.  See  also  my 
reply,  ibid.,  April,  1895. 

90 


THE   PRODUCTIVITY   THEORIES  91 

exploitation  theory  and  the  rest  by  the  theory 
of  productivity,1  then  Philippovich,2  Diehl,8 
Julius  Wolf,4  and  Wieser.5 

The  greater  number  of  these  authors  con- 
fine themselves  within  the  bounds  of  this  type 
of  theory,  or  do  not  step  out  of  them  far 
enough  to  admit  of  a  reproduction  and  criti- 
cism of  their  views  in  detail  without  tedious 
repetitions  of  well-known  ideas.6  There  is  only 

1  See  Chapter  VIII  of  this  book. 

2  "  Grundriss  der  politischen  Okonomie,"  2d  ed.,  §  121. 

8  P.  J.  Proudhon,  "  Seine  Lehre  und  sein  Leben,"  II.  Abth., 
Jena,  1890,  pp.  216-225. 

4 "  Socialismus  und  capitalistische  Gesellschaftsordnung," 
Stuttgart,  1892. 

5  «  Der  natUrliche  Wert,"  Vienna,  1889. 

6  This  is  also  true  of  the  explanations  of  Wolf,  which,  though 
very  explicit,  are  to  my  mind  very  obscure.     He  maintains  "  the 
value-productivity  of  capital,"  but  in  proof  contents  himself  with 
reflections  which  I  cannot  regard  as  real  explanations  or  solid 
arguments,  but   only  as  paraphrases   of  the  problem.     He  de- 
scribes the  "value-productivity  of  capital,"  the  existence  of  which 
he  is  attempting  to  prove,  as  "  the  capacity  of  capital  to  furnish  a 
revenue  exceeding  (a)  its  own  costs,  and  (£)  the  costs  of  those 
factors  of  production  which  are   technically  able  eventually  to 
replace  the  capital  consumed";  and  he  wishes  to  support  his 
affirmation  by  the  well-known  fact  that  a  balance  of  the  kind 
mentioned  shows  itself  whenever  by  the  intervention  of  capital 
the  advantages  of  the  division  of  labour,  of  production  on  a  large 
scale,  of  machinery,  and  of  natural  forces,  the  employment  of 
which    demands  an  investment    of   some  kind,   are  obtained. 


92    RECENT  LITERATURE  ON  INTEREST 

one  of  these  theories  which  seems  to  me  to  jus- 
tify a  special  examination,  and  that  is  Wieser's. 
Wieser  has  put  science  under  lasting  obli- 

"  Capital,"  says  Wolf,  "is  doubtless  an  objective  intermediary  of 
productivity"  (p.  461  sg.). 

That  capital  acts  as  an  "  intermediary  "  in  the  production  of 
surplus-value  cannot  be  doubted.  This  is  indeed  the  reason  why 
this  surplus-value  has  in  general  been  theoretically  and  practi- 
cally considered  as  the  income  from  capital  or  the  interest  on 
capital,  and  not  as  wages  of  labour  or  entrepreneur's  profits. 
But  precisely  this  is  the  substance  of  the  interest  problem,  the 
fact  to  be  explained  by  any  theory  of  interest,  and  by  no  means 
a  proof  or  an  evidence  of  the  correctness  of  any  specific  theory, 
for  example,  of  that  one  which  attributes  value-productivity  to 
capital.  In  the  polemical  parts  of  his  argument,  Wolf  himself 
feels  the  necessity  of  amplifying  the  above  explanation.  He 
thinks,  for  example,  that  the  consumer  will  necessarily  have  to 
value  the  quantity  of  the  product,  increased  perhaps  fourfold  by 
the  employment  of  capital,  higher  than  the  capital  consumed, 
in  order  to  offer  "the  producer  any  inducement  for  employing 
his  capital  at  all " ;  and  that  the  consumer  will  be  ready  to  put 
this  increased  valuation  upon  the  product  "  because  by  so  doing 
he  can  share  in  the  advantages  of  the  operations  of  capital,  with- 
out which  he  would  be  obliged  to  pay  fourfold  as  much  for  the 
fourfold  increased  quantity  of  product,  whereas  now  he  pays 
only  double  or  treble  as  much.  Therefore,  he  who  decides  the 
value  of  goods,  the  consumer,  by  force  of  reason,  in  order  to  de- 
rive advantage  from  the  employment  of  capital,  is  obliged  to 
leave  more  to  the  capitalist  than  the  mere  equivalent  of  his 
expenses,  and  thus  to  afford  him  an  interest  upon  his  capital." 
In  this  way  the  productivity  of  goods  passes  over  into  a  produc- 
tivity of  value  (p.  466).  But  in  all  other  cases,  efficient  competi- 
tion being  granted,  reason  is  accustomed  so  to  govern  the 


THE   PRODUCTIVITY   THEORIES  93 

gations  to  him  for  his  thorough  investigation1 
into  the  general  relations  between  the  value 
of  cost  goods  and  that  of  their  products,  as 
well  as  by  his  unsurpassably  clear  explanation 
of  the  fact  that  the  problem  of  the  imputation 
of  value  to  the  agents  which  cooperate  in  the 
production  of  a  good  is  essentially  different 
from  that  of  the  determination  of  the  physical 
contribution  of  each  to  the  common  product; 
and  that  this  problem  is  not  practically  or 
theoretically  insolvable.2  Wieser  seems  to  me 
to  have  been  somewhat  less  fortunate  in  the 
positive  formulation  of  his  attempt  at  the  solu- 
tion of  this  problem,  and  especially  in  his 
application  of  the  theory  of  imputation  to 
the  explanation  of  interest.  In  my  opinion 
this  is  chiefly  due  to  the  fact  that  he  has  not 

actions  of  both  parties  on  the  market  that  the  price  of  goods  is 
brought  to  a  level  with  the  costs  of  their  production.  The  re- 
duction of  cost  is  transformed  into  a  decline  of  prices.  Why 
should  not  this  be  the  case  here,  or  at  least  up  to  a  certain  point  ? 
This  puzzle  needs  a  clearer  explanation  than  the  allusion  to 
Adam  Smith's  old-fashioned  truism  that  capitalists  need  interest, 
in  order  to  have  a  motive  for  employing  capital! 

1  "  Ueber  den  Ursprung  und  die  Hauptgesetze  des  wirtschaft- 
lichen  Wertes,"  Vienna,  1884,  P- 139  sg>  >  "  Der  natlirliche  Wert," 
Vienna,  1889,  pp.  67  sq.,  164  sq. 

2  "  Der  natiirliche  Wert,"  §  20. 


94         RECENT  LITERATURE   ON   INTEREST 

remained  completely  true  to  his  own  theoreti- 
cal assumptions,  but  has  passed  over  to  a  train 
of  reasoning  which  in  its  essence  is  unfit  to 
solve  the  problem,  and  clashes  with  the  other 
premises  of  his  theory. 

In  his  model  exposition  of  the  imputation 
problem,  Wieser  starts  from  the  assumption 
that  the  economic  part  which  each  of  the  sev- 
eral cooperating  factors  has  in  the  common 
product  (Wieser  names  this  the  "  productive 
contribution  ")  can  be  calculated  and  separated, 
and  that  the  value  of  the  productive  goods  is 
derived  from  the  magnitude  of  the  shares  as- 
signed them  in  such  a  manner  that  the  whole 
value  of  the  product 1  (determined  according 
to  the  law  of  marginal  utility)  is  distributed 
among  all  the  productive  goods  cooperating 
in  its  production,  the  part  of  each  factor  in 
the  whole  value  depending  upon  the  size  of  its 
"productive  contribution,"  and  the  sum  of  all 
"  productive  contributions  "  exactly  exhausting 
the  value  of  the  product.2 

The  manner  in  which,  according  to  Wieser's 

1 "  Der  natiirliche  Wert,"  p.  96  sq. 

2  Ibid.,  p.  85  sg.,  especially  pp.  87,  90,  91,  92. 


THE   PRODUCTIVITY   THEORIES  95 

opinion,  the  amount  of  the  productive  contribu- 
tion of  each  factor  is  to  be  found,  need  not  be 
explained  here.  Important  as  this  question 
may  be  for  other  problems,  for  the  solution 
which  Wieser  tries  to  give  to  the  interest 
problem,  it  is  irrelevant.  For  our  present  pur- 
pose it  is  sufficient  to  remember  that,  accord- 
ing to  Wieser,  products  as  a  rule  result  from 
the  cooperation  of  land,  capital,  and  labour,  and 
that  a  certain  part  of  the  total  is  to  be  assigned 
to  each  of  these  factors  and  thus  also  to  the 
factor  capital  as  its  productive  contribution. 
The  fact  that  pure  interest  results  from  the 
imputation  of  a  share  to  capital  depends,  ac- 
cording to  Wieser's  opinion,  —  an  opinion 
which  in  this  particular  is  surely  justified,  — 
not  upon  the  question  whether  the  productive 
contribution  of  capital  is  higher  or  lower  as 
compared  to  those  of  land  and  labour,  but 
upon  forces  which  operate  exclusively  within 
the  province  of  capital. 

"  Every  capital,"  he  says,  "  yields  at  first  and 
immediately  only  a  gross  return,  that  is,  a  prod- 
uct obtained  by  a  diminution  of  its  substance." 1 

1  "  Der  natiirliche  Wert,"  p.  123. 


96    RECENT  LITERATURE  ON  INTEREST 

The  conditions  under  which  this  gross  return 
can  become  the  source  of  a  net  income,  Wieser 
formulates  in  the  statement  that  in  the  gross 
product  all  the  consumed  parts  of  capital  must 
be  reproduced  and  a  surplus  be  present  in 
addition.  And  with  reference  to  this  surplus 
and  the  "  productivity  of  the  capital  "  directed 
toward  its  production,  one  must  distinguish 
between  a  physical  surplus  and  the  physical 
productivity  of  capital  on  the  one  hand  and  a 
surplus  of  value  and  a  value-productivity  of 
capital  on  the  other.  Whoever  wishes  to  solve 
the  problem  of  interest  must,  in  the  last  analy- 
sis, prove  the  existence  of  a  value-productivity 
in  capital,  and  explain  it.  But  in  this  proof 
the  demonstration  of  the  physical  productivity 
of  capital 1  forms  a  necessary  intermediary  link. 
Accordingly,  Wieser  gives  his  explanation  in 

1  "  The  problem  of  the  theory  finally  is  to  prove  '  the  value- 
productivity  of  capital ' ;  but  for  this  purpose,  first  of  all,  the 
physical  productivity  of  capital  must  be  proved,  the  latter  being  the 
stepping-stone  to  the  former.  Value-productivity  presupposes  the 
determination  of  the  value  of  the  capital,  but  you  can  only  reach 
the  determination  of  the  value  of  capital  after  having  answered 
the  question  how  to  calculate  the  physical  share  of  capital  in  the 
product,  because  the  value  of  capital  rests  on  the  physical  share 
attributed  to  it  in  the  product." 


THE   PRODUCTIVITY  THEORIES  97 

two  stages.  In  the  first  his  aim  is  to  prove 
and  explain  the  "  physical  productivity  of  capi- 
tal "  or  the  fact  that  "  the  quantity  of  goods 
contained  in  the  gross  return  of  capital  is 
greater  than  the  quantity  of  productive  goods 
consumed  in  the  process  of  production."  In 
the  second  stage  it  remains  to  be  explained 
why  "  the  value  of  the  gross  return  is  greater 
than  that  of  the  consumed  capital."  The  first 
part  of  his  process  of  reasoning  is  as  follows: — 
"  Unquestionably  the  whole  return  of  the 
three  factors  of  production,  land,  labour,  and 
capital,  taken  together,  is  large  enough  to  re- 
place the  consumed  capital  and  to  give  a  net 
product.  This  is  an  economic  fact  which  is  as 
notorious  and  as  little  in  need  of  proof  as  the 
fact,  for  example,  that  there  are  goods  and  that 
there  is  production.  Sometimes,  it  is  true,  an 
enterprise  of  production  proves  to  be  a  failure 
and  does  not  meet  its  expenses ;  there  are  even 
undertakings  which  yield  no  available  product 
at  all;  but  these  are  exceptions.  The  rule  is 
that  net  returns  are  obtained,  yes,  net  returns 
of  the  greatest  extent,  so  that  more  than  a 
thousand  millions  of  men  are  maintained,  and 


98          RECENT   LITERATURE   ON   INTEREST 

additions  to  capital  continually  made.  But 
one  question,  therefore,  can  be  asked,  namely, 
whether  a  part  of  these  unquestioned  net  re- 
turns is  also  to  be  ascribed  to  capital ;  but  the 
answer  to  this  question  cannot  be  doubtful. 
Why  is  it  that  no  such  part  should  be  attrib- 
uted directly  to  capital  ?  As  soon  as  it  is 
understood  and  granted  that  capital  is  a  factor 
of  production,  to  the  cooperation  of  which,  with 
other  causes,  the  result  of  the  productive  pro- 
cess must  be  ascribed,  so  soon  will  it  be  under- 
stood and  granted  that  a  part  of  the  net  returns 
in  which  that  result  is  embodied  is  also  due  to 
capital.  Should  capital  be  supposed  to  be 
always  able  to  produce  only  somewhat  less 
than  its  own  reimbursement?  This  assump- 
tion would  evidently  be  arbitrary.  Should  it 
be  assumed  to  produce  always  exactly  its  own 
reimbursement,  however  various  the  results  of 
productive  enterprises  may  be?  This  suppo- 
sition would  evidently  be  no  less  arbitrary. 
He  who  denies  to  capital  a  net  return  can  do 
so  only  by  denying  returns  to  capital  at  all " 
(p.  124^.). 

Here,  I  think,  Wieser  has   taken   the   first 


THE   PRODUCTIVITY   THEORIES  99 

step  from  the  right  path.  By  the  assumption 
that  by  way  of  imputation  one  may  ascribe  to 
a  factor  immediately  some  net  return  or  some 
share  in  a  net  return,  he  has  attributed  to  the 
operation  of  imputation  something  which  by 
its  very  nature  it  cannot  accomplish.  Let  us 
disregard  all  misleading  words  and  hold  our- 
selves strictly  to  the  bare,  dry  facts  of  the  case. 
What,  according  to  Wieser  himself,  is  the  ob- 
ject and  office  of  imputation  ?  It  is  to  distrib- 
ute the  result  of  production  among  the  various 
factors  cooperating  in  it,  consequently  to  ascer- 
tain the  share  of  each  factor  in  the  production 
of  the  gross  product.  Thus  has  Wieser  him- 
self repeatedly  explained  the  problem  of  impu- 
tation in  expressions  quite  unambiguous,  and 
thus  has  he  illustrated  it  by  practical  examples. 
So  must  it  also  necessarily  be  understood,  if 
the  method  indicated  by  him  for  computing 
those  shares  (p.  87)  is  to  be  employed.  If 
Wieser,  for  example,  attributes  the  value  of  a 
tin  vessel  to  the  labour  of  the  artisan  and  to  the 
material  out  of  which  it  is  formed  (p.  86),  if  in 
measuring  the  share  of  the  produce  belonging  to 
land  he  takes  his  starting-point  from  the  aggre- 


100       RECENT   LITERATURE   ON   INTEREST 

gate  value  of  its  produce  (p.  1 13),  if  he  assumes 
that  the  sum  of  all  the  productive  contributions 
exhausts  the  value  of  the  aggregate  product 
(p.  87),  and  each  factor  derives  its  value  from  its 
productive  contribution,  it  is  perfectly  evident 
that  the  thing  to  be  imputed  is  the  gross  prod- 
uct and  that  the  special  contribution  of  the 
factor  capital  is  and  can  be  nothing  else  but 
an  aliquot  part  of  this  gross  product.  If,  for 
example,  a  husbandman,  with  the  cooperation 
of  labourers,  and  of  capital  composed  of  seed, 
agricultural  implements,  manure,  live  stock, 
etc.,  obtains  from  his  land  an  aggregate  prod- 
uct of  330  bushels  of  grain,  it  is  the  task  of 
imputation  to  decide  what  portion  of  these  330 
bushels  is  due  to  land,  what  to  labourers,  and 
what  to  the  capital  cooperating  and  in  part 
worn  out  thereby.  If  this  imputation  happens 
to  lead  to  the  result  that  to  each  of  the  three 
factors  the  same  share  in  producing  the  prod- 
uct is  to  be  attributed,  the  productive  contri- 
bution will  be  determined  at  no  bushels  for 
each,  and  it  is  perfectly  evident  that  the  no 
bushels  ascribed  to  the  cooperation  of  capital 
is  a  quota  of  gross  returns.  Whether  in  this 


THE   PRODUCTIVITY   THEORIES  IOI 

quota  of  gross  returns  there  will  be  found  also 
a  quota  of  net  returns,  hk^wise  whfetlter  or  not 
the  portions  of  the -gross  product .  ascribed  to 
land  and  labourers, 'from '  any  point  of'  view 
whatsoever,  may  be  considered  as  net  revenue, 
these  are  questions  which  go  beyond  the  prob- 
lem of  imputation.  For  the  solution  of  these 
questions  the  magnitude  of  the  portions  of 
gross  returns  imputed  may  be  a  relevant,  even 
a  very  important  element,  but  it  can  never  form 
more  than  one  single  element,  beside  which 
other  facts  and  considerations  have  an  influence, 
though  they  have  nothing  to  do  with  the  pro- 
cess of  imputation.  In  our  example,  the  impu- 
tation ends  with  the  statement  that  out  of  the 
gross  product  of  330  bushels  the  producer 
owes  to  each  of  the  factors  of  production  no 
bushels.  Beyond  this,  imputation  has  not  a 
single  word  to  say. 

But  Wieser,  nevertheless,  thinks  that  he  is 
able  to  make  plausible  the  claim  that  a  share 
even  in  the  net  revenue  may  be  ascribed  to 
capital  by  the  process  of  imputation.  But  it 
is  as  interesting  as  it  is  significant,  that  he  can 
only  find  the  connecting  link  for  his  exposi- 


102        RECENT   LITERATURE   ON   INTEREST 

tion  by  employing,  unconsciously,  of  course, 
the  term  "  net  revenue  "  in  a  double  sense.  "  Un- 
questionably," He' says,  in  the  passage  above 
quoted,  *u'the  aggregate  product  of  all  the  three 
factors  of  production,  —  land,  labour,  and  capi- 
tal together,  is  large  enough  to  replace  the 
capital  consumed  and  to  supply  a  net  reve- 
nue!" Certainly,  and  this  may  be  easily  un- 
derstood ;  for  what  is  called  "  net  revenue  "  in 
this  sentence  is  the  surplus  of  the  aggregate 
product  of  land,  labour,  and  capital  above  the 
value  of  the  consumed  capital  alone,  or,  in 
other  words,  the  surplus  of  the  value  of  the 
product  of  three  factors  over  that  of  one  of 
them.  But  that  three  factors  can  produce 
more  than  one  of  them  is  worth,  is  not  only 
a  thing  very  plausible  in  itself,  but  becomes 
self-evident  in  connection  with  a  theory  which, 
like  Wieser's,  rests  on  the  principle  that  the 
value  of  a  product  is  identical  with  that  of  the 
sum  of  its  factors.  In  the  light  of  this  principle 
the  existence  of  the  said  "  net  revenue  "  is  self- 
evident  in  the  same  degree  as  the  axiom  that 
the  whole  must  be  greater  than  one  of  its 
parts,  or  that  a  filled  chest  must  have  not 


THE   PRODUCTIVITY   THEORIES  103 

only  a  "  gross  weight,"  but  also  a  "  net  weight " 
beyond  the  weight  of  an  empty  chest. 

It  is  thus  clear  that  the  reasons  why,  in  the 
determination  of  that  net  return  which  results 
from  production  as  a  whole,  the  value  of  the 
capital  consumed  but  not  that  of  the  con- 
sumed land  and  labour  is  deducted  from  the 
gross  return,  have  nothing  whatever  to  do 
with  the  question  of  imputation.  It  is  well 
known  that  these  reasons  are  rather  to  be 
found  exclusively  in  the  particular  point  of 
view  from  which  the  observer  considers  the 
outcome  of  production.  If  this  point  of  view 
changes,  the  method  of  procedure  in  the 
matter  of  deducting  or  not  deducting  the 
value  of  those  other  factors  of  production 
also  changes.  For  example,  from  his  individ- 
ual, economic  standpoint,  the  employer  who 
buys  and  pays  for  the  labour  of  other  people 
is  certainly  obliged  to  deduct  from  the  gross 
product  the  value  of  the  consumed  labour 
also.1  On  the  other  hand,  from  the  so-called 

1  Those  who  produce  for  their  own  account  may  also  judge 
the  success  of  production  by  considering  whether  the  product  of 
labour  attains  or  exceeds  the  trouble  of  labour;  if  the  utility 


104   RECENT  LITERATURE  ON  INTEREST 

national  economic  standpoint, — the  one  which 
Wieser  occupies  when  he  says  that  more  than 
a  thousand  millions  of  men  are  maintained 
out  of  these  enormous  net  revenues,  —  that 
deduction  must  be  omitted.  But  it  is  clear 
that  the  problem  of  imputation  has  absolutely 
nothing  to  do  with  the  choice  between  these 
different  standpoints  and  the  corresponding 
methods  of  calculating  the  net  revenue.  How 
much  of  the  gross  product  is  to  be  attrib- 
uted to  the  factor  labour  is  one  question, 
and  that  too  a  question  of  imputation ;  but 
whether  or  not  one  ought  to  deduct  from 
the  gross  product  the  value  of  labour  result- 
ing from  this  computation  is  a  completely 
different  and  an  independent  question. 

Nevertheless  Wieser  wishes  to  utilize  the 
existence  of  a  net  revenue  of  the  above-de- 
scribed origin  and  nature  in  his  explanation  of 
the  statement  that  a  net  revenue  must  be  at- 

which  the  labourer  draws  from  his  product  is  less  than  the 
trouble  connected  with  the  labour,  one  may  say,  from  a  point  of 
view  admissible  and  relevant,  that  labour  is  not  remunerative. 
On  the  contrary,  the  surplus  of  utility  over  the  trouble  taken  in 
its  acquisition  may  be  considered  as  a  "  net  utility  "  (Marshall's 
"  producer's  surplus  "  ;  "  Principles,"  3d  ed.,  p.  217). 


THE   PRODUCTIVITY   THEORIES  105 

tributed  also  to  capital.  As  he  puts  it  in  the 
passage  above  quoted,  only  one  question  can 
be  seriously  asked,  namely,  whether  a  part  of 
that  unquestioned  net  revenue  should  also 
be  attributed  to  the  factor  capital.  "  Why, 
then,"  he  asks,  "should  no  such  share  be  at- 
tributed to  capital  ? "  The  answer  is  very 
simple.  Because  what  is  called  a  "  net  re- 
turn "  from  capital  is  no  "  such "  net  return 
at  all,  but  a  quantity  of  a  very  different  nature, 
the  existence  of  which  depends  on  quite  dif- 
ferent and  much  more  severe  conditions.  For, 
while  a  net  product  from  the  point  of  view 
above  indicated  is  created  as  soon  as  the 
gross  product  of  all  the  three  factors  together 
exceeds  the  value  of  the  capital  consumed,  a 
net  product  of  capital  comes  into  existence 
only  when  the  quota  of  the  gross  product 
assigned  to  the  factor  capital  is  greater  than 
the  capital  consumed;  and  because  there  is 
so  great  diversity  between  the  premises  in 
the  two  cases,  the  realization  of  the  first  re- 
lation furnishes  no  probability  or  analogy  in 
support  of  the  conclusion  that  the  second  re- 
lation also  must  or  will  be  realized.  That 


106        RECENT   LITERATURE   ON   INTEREST 

three  men  together  can  lift  more  than  the 
weight  of  one  may  be  perfectly  explicable 
and  clear,  but  from  this  it  by  no  means  follows 
that  one  alone  would  be  able  to  lift  more  than 
his  own  weight.  It  may  be  that  he  can,  but 
he  who  wishes  to  maintain  and  at  the  same 
time  to  prove  this  will  be  obliged  to  allege 
some  special  cause  having  reference  to  that 
particular  person ;  but  such  a  cause  can 
neither  be  derived  from  nor  strengthened  by 
the  fact  that  three  men  together  are  able  to 
lift  more  than  the  weight  of  one. 

But  if  one  destroys  the  fallacious  bridge  of 
explanation  which  Wieser  constructs  from 
net  product  in  the  one  sense  to  net  product 
in  the  other,  no  argument  is  left  on  which 
an  explanation  of  the  net  revenue  of  capital 
could  be  based.  When  to  the  question,  "  Can 
the  produce  of  capital  only  be  something 
less  than  its  own  replacement,"  Wieser  gives 
the  answer,  "  This  supposition  would  be 
perfectly  arbitrary,"  he  is  quite  right.  But 
when  he  continues  with  the  question,  "  Can 
the  produce  of  capital  only  be  as  much  as 
its  own  replacement,  however  various  the 


THE   PRODUCTIVITY  THEORIES  107 

results  of  productive  processes  may  be,"  and 
answers,  "  This  supposition  would  evidently  be 
no  less  arbitrary,"  there  is  some  doubt  about 
the  correctness  of  his  statement;  for  it  might 
well  be  that  the  returns  of  capital,  according 
to  the  chance  success  of  the  individual  under- 
taking, would  fluctuate  now  above  and  now 
below  the  amount  of  the  consumed  capital, 
and  yet  on  the  average  tend  just  to  replace 
this  amount.  This  assumption  can  scarcely 
appear  arbitrary  in  connection  with  a  theory 
like  Wieser's  which  derives  the  value  of  a 
product  from  that  of  the  factors  which  pro- 
duced it.  But  even  supposing  this  to  be  the 
case,  yet  from  the  arbitrary  character  of  the 
two  first  assumptions  the  inference  can  never 
be  drawn  that  the  third  supposition,  namely, 
that  capital  must  regularly  produce  more  than 
its  own  replacement,  is  legitimate  and  jus- 
tifiable, or  that  it  may  in  this  way  be  explained. 
It  is  no  doubt  an  arbitrary  supposition,  that  a 
man  can  always  lift  only  something  less  than 
his  own  weight;  it  is  equally  arbitrary  to 
suppose  that  he  can  lift  just  his  own  weight, 
neither  more  nor  less ;  and  in  itself  and  with- 


108       RECENT   LITERATURE   ON   INTEREST 

out  any  other  positive  reason,  it  is  certainly 
no  less  arbitrary  to  suppose  that  every  man 
can  lift  more  than  his  own  weight.  If,  of 
three  possible  rules,  two  cannot  be  established, 
it  by  no  means  follows  that  the  third  fits  the 
case,  since  the  existence  of  any  rule  may  re- 
main in  doubt.  And  if,  in  the  case  in  ques- 
tion, from  a  source  of  knowledge  totally 
different  from  such  syllogisms,  that  is,  from 
experience,  we  know  that  the  share  which 
must  be  attributed  to  capital  is  regularly 
greater  than  the  capital  consumed,  yet  no 
ray  of  light  is  shed  on  this  fact  by  these 
syllogisms,  which  are  not  conclusive  in  them- 
selves and  contain  no  trace  of  an  explanation 
such  as  every  interest  theory  is  called  upon 
and  bound  to  offer. 

In  what  follows  we  also  look  in  vain  for  any- 
thing of  this  kind.  Wieser  wishes  to  make  his 
doctrine  clear  in  a  concrete  case,  and  chooses 
the  example  of  a  machine  which  supplants 
hand -labour.  "  Wherever  capital  supplants 
hand-labour,"  he  says,  "where,  for  example,  a 
machine  does  the  work  which  up  to  that  time 
has  been  done  by  hand,  the  capital,  that  is,  the 


THE   PRODUCTIVITY  THEORIES  IOQ 

machine,  must  receive  at  least  the  amount  pre- 
viously attributed  to  the  labour.  That,  how- 
ever, was  a  net  return ;  therefore,  a  net  return 
must  be  attributed  to  capital  also.  That  this 
syllogism  likewise  has  no  support  except  the 
above-criticised  ambiguous  use  of  the  word  net 
return,  I  need  hardly  tell  the  attentive  reader. 
Here  the  non  sequitur  is  still  more  striking. 
For  a  net  return  in  the  first  sense,  that  is,  in 
which  the  value  of  labour  itself  is  not  deducted 
from  its  product,  might  result  from  a  very  un- 
profitable, uneconomical  employment  of  labour 
which  does  not  cover  the  costs,  and  which 
therefore  involves  loss  to  the  investor;  an 
employment,  for  instance,  in  which  labour  to 
the  value  of  100  florins  is  consumed,  but  which 
adds  a  value  of  only  about  50  florins  to  the 
raw  material  worked  up.  But  who,  follow- 
ing Wieser's  method  of  reasoning,  would  be 
satisfied  with  the  conclusion  that  the  capi- 
tal, which,  with  equal  or  somewhat  more 
favourable  results,  takes  the  place  of  such 
labour,  must  receive  not  only  a  gross  but 
also  a  net  return,  because,  forsooth,  it  must 
receive  at  least  the  same  return  as  the  labour 


IIO       RECENT   LITERATURE   ON   INTEREST 

which     it    supplanted,    and    this   was   a   "  net 
return"?1 

When,  in  a  longer  explanation,  based  upon 
Thiinen's  reasoning,  Wieser  further  endeavours 
to  make  technically  plausible  the  claim  that 
capital  must  assist  in  the  creation  of  a  product 
in  excess  of  its  own  substance,  he  strikes  pre- 
cisely the  same  rock  upon  which  Thiinen  made 
shipwreck.  Capital  does  not  literally  repro- 
duce itself  and  something  else  in  addition.  It 
produces  some  other  kinds  of  products,  and 
these  are  commensurable  with  it  only  from  the 
point  of  view  of  value.  Bows  and  arrows  do 
not  produce  bows  and  arrows,  but  dead  game. 
The  fact  that  this  dead  game  is  of  greater 
value  than  the  bow  and  arrow  used  up  in  its 
killing  is  not  a  technical  fact  which  could  be 
employed  to  explain  the  net  profit  of  capital, 
—  the  object  of  the  interest  problem,  —  but  is 
itself  the  thing  to  be  explained.2  Wieser  him- 
self also  very  clearly  sees  this  difficulty.  He 
distinctly  adds  that  the  product  of  bows  and 
arrows  is  a  "gross  product  in  other  kinds  of 

1  «Der  naturliche  Wert,"  p.  125. 

2  See  "Capital  and  Interest,"  Smart's  translation,  p.  169  sq. 


THE   PRODUCTIVITY   THEORIES  in 

goods,  out  of  which  they  are  not  replaced,  and 
with  which  they  may  be  compared  in  value  but 
not  in  quantity "  (p.  1 30).  But  he  believes 
that  he  is  able  to  surmount  this  difficulty  by 
means  of  a  somewhat  vague  assumption  of  a 
"  mediate  efficiency  (mittelbare  Wirksamkeit) 
of  capital."  The  possession  of  arrows,  bows, 
and  nets  facilitates  the  conditions  for  repro- 
duction, even  though  they  do  not  contribute 
to  it;  it  facilitates  them  by  the  extraordinary 
increase  of  the  gross  return  in  game  and  fish, 
in  consequence  of  which  far  more  labour  than 
before  is  free  for  the  production  of  capital. 
The  final  result,  therefore,  is  that  a  net  return  is 
imputed  to  these  capital  goods,  just  as  if  they  im- 
mediately reproduced  themselves  with  a  surplus. 
In  my  opinion,  there  may  possibly  be  some 
doubt  whether  this  "  mediate "  connection  is 
close  and  continuous  enough  to  enable  an 
exact  computation  to  be  based  upon  it  It 
might  especially  be  doubted  whether  the 
technical  commensurability  between  products 
which  the  labourer  consumes  and  those  which 
he  will  produce  is  not  rather  interrupted  than 
mediated  by  the  intercalation  of  the  intermedi- 


112   RECENT  LITERATURE  ON  INTEREST 

ary  link,  "  person  of  the  labourer " ;  for,  if  we 
except  the  case  of  slavery  considered  from  the 
rudest  slaveholder's  standpoint,  the  working 
economic  subject,  as  a  factor  of  production  on 
the  one  hand,  represents  an  original  productive 
force,  and  as  a  consumer  on  the  other  hand, 
represents  the  goal  and  final  end  of  the  pro- 
ductive endeavours  which  have  gone  before,  so 
that  his  intervention  seems  to  signify  rather  a 
caesural  pause  in  the  technical  process  of  pro- 
duction, a  conclusion  of  previous  efforts  which 
attained  their  goal  in  his  consumption  and  the 
beginning  of  a  new  production,  rather  than 
the  continuation  of  one  and  the  same  produc- 
tive process. 

However,  I  will  leave  in  abeyance  this 
question,  as  delicate  as  it  is  difficult.  Even 
if  one  does  not  wish  to  struggle  with  the  mani- 
fold objections  to  which  it  leads,  still  the  ex- 
planation proposed  by  Wieser  would  come 
to  grief  in  the  second  part  of  his  programme, 
that  part  which  undertakes  the  task  of  de- 
ducing the  value-productivity  of  capital  from 
its  physical  productivity.  Suppose  that  he  has 
really  succeeded  in  proving  that  to  capital  a 


THE   PRODUCTIVITY   THEORIES  113 

concrete  quantity  of  products  must  be  ascribed 
which  is  greater  than  the  quantity  represented 
by  the  consumed  capital  itself,  it  still  remains 
to  be  proved  and  explained  that  this  greater 
quantity  of  produce  must  also  have  a  greater 
value  than  the  capital  out  of  which  it  has 
arisen.  This  again  is  not  at  all  self-evident, 
but  in  direct  contradiction  to  the  general  prem- 
ises of  Wieser's  imputation  theory.  Wieser's 
entire  theory  of  value  and  imputation  rests  on 
the  idea  that  the  value  of  goods  arises  from  the 
(marginal)  utility  to  be  attributed  to  them. 
This  is  true  for  production  as  well  as  for 
consumption  goods.  Now,  production  goods 
realize  their  utility  through  their  products,  and 
hence  the  utility  which  is  ascribed  to  them 
is  precisely  the  same  as  that  ascribed  to  their 
products.  Therefore,  because  a  production 
good  derives  its  value  from  the  same  quantity 
of  utility  as  its  product,  it  necessarily  follows 
that  it  must  have  exactly  the  same  value 
as  that  product.  Consequently,  provided  no 
entirely  new  factor  of  special  influence  inter- 
venes, a  surplus  of  value  in  the  product 
over  and  above  that  of  its  corresponding  pro- 


114        RECENT   LITERATURE   ON    INTEREST 

ductive  good  or  goods,  or  a  value-productivity 
of  capital,  is  entirely  out  of  the  question. 

Wieser  also  sees  this  obstacle,  to  which  I 
had  called  attention  in  my  criticism  of  the 
older  forms  of  the  productivity  theory,1  and 
brings  it  clearly  before  his  own  eyes  and  those 
of  his  readers.  "  Capital,"  he  says,  "  receives 
its  value  from  its  fruits;  therefore,  if  you 
deduct  .  .  .  from  the  value  of  these  fruits 
the  value  of  the  capital  consumed,  ...  no 
balance  is  left.  .  .  .  The  amount  deducted 
must  always  be  as  great  as  the  value  of  these 
fruits,  since  these  latter  furnish  the  measure 
of  the  value  of  the  quantity  deducted.  .  .  . 
Consequently  the  calculation  of  value  furnishes 
no  net  return,  and  not  only  can  interest  not  be 
explained  by  it,  but  it  is  proved  to  be  quite 
impossible ! "  Wieser  believes,  however,  that 
he  has  solved  these  difficulties  by  the  results  of 
his  investigations  regarding  imputation.  His 
imputation  theory  justifies  him,  he  thinks,  in 
attributing  to  capital  not  only  a  gross  return, 
but  also  a  physical  net  return.  "  In  the  gross 
product  capital  reproduces  itself  with  a  physi- 

1  See  Smart's  translation,  p.  179. 


THE   PRODUCTIVITY  THEORIES  115 

cal  surplus,  the  net  product.  Hence  the  value 
of  capital  cannot  be  rated  equal  to  that  of 
the  gross  product.  In  its  reproduction  capital 
forms  but  a  part  of  its  own  gross  product, 
consequently  it  can  absorb  only  a  part  of  the 
value  of  the  gross  product"  If  the  gross 
product  is  worth  105,  and  a  part  equal  to  five 
be  deducted  for  fruits  which  may  be  consumed 
without  disturbing  the  complete  replacement 
of  capital,  only  "the  remainder,  100,  can  be 
reckoned  as  the  value  of  capital."1 

To  this  argument  two  objections  can  be 
made.  First  of  all,  as  I  endeavoured  to  show 
above,  one  may  contest  the  premise  that  the 
rules  of  imputation  lead  to  the  imputation  of 
a  physical  net  product  to  capital.2  But  even 
if  this  premise  were  correct,  the  conclusion 
drawn  from  it  is  not.  Suppose  we  had  really 
to  attribute  to  a  capital  consisting  of  100 

1  "  Der  natUrliche  Wert,"  pp.  134  sq.  and  136. 

2  To  avoid  a  misunderstanding,  I  wish  to  remark  that  Wieser 
maintains  the  "  physical  productivity  of  capital  "  in  a  sense  which 
differs  from  all  the   numerous  meanings   of  the  term  which  I 
enumerated  and  explained  in  Section  VII  (p.  in  sq.  of  Smart's 
translation),  and  also  from  that  recognized  in   my   "Positive 
Theory  "  and  made  a  support  for  a  part  of  my  exposition. 


Il6   RECENT  LITERATURE  ON  INTEREST 

pieces  of  goods,  a  gross  product  of  105  pieces 
of  the  same  kind  and  a  net  product  of  5  pieces, 
the  only  conclusion  which  could  be  correctly 
drawn  from  this  statement,  in  view  of  the  uni- 
versal law  of  the  identity  of  the  value  of  the 
means  of  production  and  of  their  products,  is 
that  the  value  of  a  single  piece  cannot  be  the 
same  in  both  these  generations  of  capital,  but 
that  100  pieces  of  the  earlier  generation  must 
be  equivalent  in  value  to  105  pieces  of  the 
following,  i.e.  the  next  year's  generation.  Thus 
evidently  the  value-equivalence  of  capital  and 
its  gross  product  would  be  maintained. 

Indeed,  Wieser  can  reach  his  opposite  con- 
clusion, that  the  value  of  capital  can  be  esti- 
mated only  at  a  smaller  amount  than  that  of 
its  gross  product,  only  by  means  of  a  deceptive 
logical  blunder  due  to  a  dialectical  trick.  In 
this  case  he  repeats  a  mistake  already  famous 
in  the  history  of  interest  theories.  Like  the 
old  canonists,  together  with  their  contemporary 
antagonists,1  and  like  Knies  in  more  recent 
times,  Wieser  imagines  the  identity  of  the 
original  capital  with  an  equal  number  of  like 

1  See  "  Capital  and  Interest,"  Smart's  translation,  Ch.  IX. 


THE   PRODUCTIVITY  THEORIES  117 

pieces  of  goods  in  a  subsequent  period.  He 
introduces  this  fiction  by  a  bit  of  dialectics. 
The  fact,  rightly  or  wrongly  assumed,  that  a 
greater  number  of  pieces  than  was  contained 
in  itself  is  assigned  to  capital  as  its  share  in 
the  product,  is  expressed  by  Wieser  in  the 
words :  "  In  the  gross  product  capital  repro- 
duces itself  with  a  physical  surplus."  From 
this  basis,  he  proceeds  step  by  step  as  follows : 
"  In  its  reproduction  capital  represents  only  a 
part  of  its  own  product,"  and  in  consequence 
it  cannot  absorb  more  than  a  portion  of  the 
value  of  the  gross  product.  In  a  more  correct 
manner  Wieser  should  have  said  in  his  first 
statement :  "  In  the  gross  product  capital  pro- 
duces an  equal  number  of  pieces  of  the  same 
kind  but  available  under  other  conditions  of 
time  and  in  addition  a  surplus  of  such  pieces." 
The  second  sentence  should  then  have  read : 
"  That  equal  number  represents  only  a  part 
of  the  gross  product,"  and  finally  he  could 
reach  only  the  conclusion  that  that  equal 
number  could  not  absorb  more  than  a  por- 
tion of  the  value  of  the  gross  product.  In 
short,  it  is  clear  and  demonstrable  that  100 


Il8        RECENT   LITERATURE   ON   INTEREST 

pieces  or  units  of  the  second  generation  of 
capital  are  worth  less  than  105  pieces  of  the 
same  generation  ;  but  since  the  original  capital 
of  100  pieces  is  by  no  means  identical  with  the 
100  pieces  of  the  second  generation,  there  is 
no  justification  for  applying  to  the  former  the 
relation  of  value  to  gross  product  proved  to 
exist  in  the  latter.  The  truth,  on  the  con- 
trary, is  that,  as  the  general  premises  of 
Wieser's  theory,  to  which  the  author  has  not 
remained  quite  true,  postulate,  capital  is  equiv- 
alent in  value  to  its  whole  gross  product, 
though  this  may  consist  of  more  pieces.  How, 
in  spite  of  this  equivalent,  an  increment  of 
value  can  arise  which  furnishes  the  material 
for  interest,  is  the  salient  point  of  the  interest 
problem.  For  this  phenomenon,  I  believe, 
an  explanation  presents  itself,  if  we  take  into 
account  the  influence  of  distance  in  time  on 
the  estimation  of  goods  and  the  maturing  of  the 
future,  originally  less  valued,  goods  into  the 
full  value  of  present  goods ; l  whereas  no  sat- 
isfactory explanation  can  be  found  by  sup- 

1  For  a  more  explicit  explanation  see  my  "  Positive  Theory  of 
Capital." 


THE   PRODUCTIVITY   THEORIES  1 19 

posing,  contrary  to  principles,  that  productive 
goods  in  distinction  from  all  others  derive 
their  value  from  a  part  only  of  the  utility 
originated  by  them ! 

It  is  rather  strange  that  in  the  further 
course  of  his  inquiry  Wieser  also  is  led  to 
the  recognition  of  the  central  principle  of 
my  theory  of  interest,  namely,  that  present 
goods  as  a  rule  are  worth  more  than  future 
ones.  Only  he  is  not  willing  to  recognize 
this  as  a  starting-point  but  as  a  conclusion 
of  his  demonstrations,  not  as  a  cause  but  as 
an  effect  of  the  phenomenon  of  interest.1 
However,  if  I  am  not  wholly  mistaken,  this 
principle  cannot  be  regarded  as  a  deduction 
from  Wieser's  views,  but  must  be  considered 
incompatible  with  them.  If  a  capital  of  100 
pieces  gives  in  one  year  a  gross  product  of 
105  pieces,  it  cannot  possibly  at  the  same 
time  be  true  that  it  possesses  a  value  5  per 
cent  smaller  than  its  gross  product  of  105 

1  "  Yet  it  is  not  the  same  thing  whether  one  possesses  it  (a 
capital)  from  the  present  moment  or  only  a  year  hence,  because 
the  present  possession  warrants  one  more  term  of  interest.  .  .  . 
A  present  sum  is  always  superior  in  value  to  an  equal  sum  due 
at  a  later  term  "  ("  Der  natUrliche  Wert,"  p.  138). 


120   RECENT  LITERATURE  ON  INTEREST 

pieces,  and  yet  is  of  the  same  value  as  105 
pieces  of  the  ensuing  year!  Wieser  could 
arrive  at  the  latter  conclusion,1  in  itself  per- 
fectly true,  only  by  dropping  here  the  fiction 
of  the  identity  of  present  capital  with  a  like 
number  of  pieces  of  its  product.  Only  he 
ought  not  to  have  employed  this  fiction  in 
his  preceding  arguments. 

Wieser's  theory  of  interest,  expounded  with 
much  ingenuity  and  eloquence,  is  particularly 
interesting  because  it  represents  a  peculiar 
attempt  to  attach  to  a  system,  modern  through 
and  through,  an  addition  constructed  out  of 
old  materials,  namely,  out  of  the  "productivity 
of  capital "  which  has  so  often  appeared  on  the 
scene,  and  that  venerable  old  fiction  of  the 
identity  of  the  original  capital  with  the  "prin- 
cipal sum  "  which  serves  to  replace  it  at  some 
future  period.  This  attempt,  I  believe,  has 
not  succeeded.  The  old  and  the  new  notions 
clash  with  each  other.  Thanks  to  the  author's 
dialectical  skill,  the  conflict  of  the  new  theories, 

1  In  a  substantially  identical  form  it  is  to  be  found  on  page  138 
("  Der  natiirliche  Wert ")  in  the  statement  that  "  100,  which  I 
shall  obtain  after  a  year  only,  are  to-day  worth  but  about  95." 


THE   PRODUCTIVITY   THEORIES  121 

—  for  the  foundation  of  which  Wieser  him- 
self has  worked  with  lasting  merit,  —  with  the 
old  were  with  difficulty  concealed  at  the  critical 
points;  but  the  conflicting  elements  could  not 
be  brought  into  any  intimate  union.  The 
failure  of  the  attempt  of  a  theorist  of  such 
force  and  resources  to  revive  the  productivity 
theory  seems  to  me  to  be  the  best  proof  that 
the  solution  of  the  problem  of  interest  can 
never  be  found  in  the  process  of  thought 
peculiar  to  that  theory. 


CHAPTER  VII 

THE  EXPLOITATION  THEORY 

DURING  this  entire  period  the  exploitation 
theory  has  occupied  much  space  in  literary 
discussions.  These  have  been  especially  ex- 
cited and  animated  on  account  of  a  peculiar 
personal  turn  which  they  have  taken  and 
sometimes  also  on  account  of  a  kind  of  dra- 
matic tension.*  Of  all  socialistic  writers  Karl 
Marx  —  not  perhaps  without  an  unjust  depre- 
ciation of  others,  and  especially  of  Rodbertus, 
whose  scientific  rank  was  high  —  had  gained 
the  greatest  influence  over  his  partisans.  His 
work  represented,  so  to  speak,  the  official 
doctrine  of  contemporary  socialism.  It  there- 
fore occupied  the  centre  of  attack  and  defence. 
The  polemical  literature  of  the  time  became  a 
literature  on  Marx.  The  circumstances  also 
were  of  unusual  interest.  Marx  had  died 
before  he  had  brought  his  work  on  capital 
to  an  end.  The  unfinished  parts  were  found 

122 


THE   EXPLOITATION   THEORY  123 

in  manuscript  among  his  belongings  in  an 
almost  complete  form.  These  were  expected 
to  furnish  the  explanation  of  a  problem  which 
had  been  the  chief  cause  of  the  attack  against 
the  exploitation  theory  and  which,  according 
to  the  expectations  of  both  the  contending 
parties,  would  furnish  the  deciding  test  of  the 
tenableness  or  untenableness  of  the  Marxian 
system,  the  problem,  namely,  of  harmonizing 
and  connecting  the  rate  of  profits,  which  ex- 
perience shows  tends  toward  equality  in  all 
forms  of  investment,  with  the  law  of  value  and 
the  theory  of  exploitation  which  Marx  had 
developed  in  his  first  volume.1  The  publication 
of  the  third  volume,  in  which  this  theme  was 
treated,  was  delayed  until  1894,  eleven  years  after 
the  death  of  Marx.  The  interest  in  the  question 
regarding  what  Marx  himself  might  have  had 
to  say  on  this  most  delicate  point  of  his  theory 
showed  itself  in  a  sort  of  prophetic  literature 
which  had  for  its  object  the  development  of 
Marx's  probable  opinion  on  the  subject  of  the 
average  rate  of  profit  from  the  premises  given 

1  See  "  Geschichte  und  Kritik  der  Capitalzins-Theorien,"  2d 
ed.,  Section  XII,  p.  530  sq. 


124        RECENT   LITERATURE   ON    INTEREST 

in  his  first  volume.  This  prophetic  literature 
fills  the  decade  from  1885-1894,  and  presents 
a  stately  array  of  more  or  less  extensive  publi- 
cations.1 The  second  act  and  at  the  same 
time  the  climax  of  the  dramatic  development 
was  reached  in  1894  by  Engels's  publication 
of  the  posthumous  third  volume.  And  then 
follows  as  a  third  act  an  exceedingly  animated 
literary  discussion  on  the  critical  estimate  of 
this  third  volume,  its  relation  to  the  point  of 

1 1  have  given  a  compilation  of  these  on  another  occasion  (in 
an  essay  "Zum  Abschluss  des  Marx'schen  Systems,"  in  the 
"  Festgaben  fiir  Carl  Knies,"  1896,  p.  6).  It  comprises  :  Lexis, 
Jahrbucher  fiir  Nationalokonomie,  1885,  N.F.,  Vol.  XI,  pp. 
452-465  ;  Schmidt,  "  Die  Durchschnittsprofitrate  auf  Grund  des 
Marx'schen  Wertgesetzes,"  Stuttgart,  1889;  an  examination  of 
this  latter  paper  by  myself  in  the  Tubinger  Zeitschrift  f.  d.  ges. 
Staatsw.,  1890,  p.  590  jy.,  and  by  Loria  in  the  Jahrbucher  fur 
Nationalokonomie,  N.F.,  Vol.  XX  (1890),  p.  272  sq.;  Stiebeling, 
"Das  Wertgesetz  und  die  Profitrate,"  New  York,  1890;  Wolf, 
"  Das  Rathsel  der  Durchschnittsprofitrate  bei  M^rx^  Jahrbucher 
fur  Nationalokonomie,  III  F.,  Vol.  2  (1891),  p.  352  sq.;  again 
Schmidt,  Neue  Zeit,  1892-1893,  Nos.  4  and  5;  Landd,  ibid., 
Nos.  19  and  20 ;  Fireman,  "  Kritik  der  Marx'schen  Werttheorie," 
Jahrbucher  fur  National'okonomie,  III  F.,  Vol.  3  (1892),  p.  793  sq.; 
finally,  Lafargue,  Soldi,  Coletti,  and  Graziadei,  in  the  Critica  Sociale, 
from  July  to  November,  1894.  Of  the  other  literature  of  this 
period  on  Marx,  we  may  refer  to  Georg  Adler,  "  Die  Grundlagen 
der  Karl  Marx'schen  Kritik  der  bestehenden  Volkswirtschaft," 
TUbingen,  1887. 


THE  EXPLOITATION   THEORY  125 

departure  taken  by  Marx  in  the  systematic 
development  of  his  theories,  and  the  future 
prospects  of  Marxism,  a  discussion  which  is 
not  likely  soon  to  reach  a  conclusion.1 

I  can  content  myself  here  with  a  mere  regis- 
tration of  these  events,  because  in  an  earlier 
part  of  this  work  I  have  described  their  scien- 
tific content  and  subjected  them  to  a  critical 
analysis.  Nor  have  I  withheld  my  opinion 

1  Of  the  writings  on  this  subject  which  have  hitherto  appeared 
may  be  mentioned :  numerous  essays  in  the  Neue  Zeit,  espe- 
cially by  Engels  (XIV  Jahrgang,  Vol.  i,  Nos.  i  and  2),  Bern- 
stein, and  Kautsky ;  then  Loria,  "  L'opera  posthuma  di  Carlo 
Marx"  (Nuova  Antologia,  February,  1895);  Sombart,  "  Zur 
Kritik  des  b'konomischen  Systems,  von  K.  Marx"  (Archivfur 
soc.  Gesetzgebung  und  Statistik,  Vol.  VII,  Pt.  4)  ;  the  above- 
mentioned  essay  by  myself,  "Zum  Abschluss  des  Marx'schen 
Systems,"  1896 ;  Komorzynsky,  "  Der  dritte  Band  von  Carl  Marx, 
*  das  Kapital,'  "  in  the  Zeitschr.fiir  Volkswirthschaft,  Socialpoli- 
tik  und  Verivaltung,  Bd.  VI,  p.  242  sq.\  Wenkstern,  "Marx," 
Leipzig,  1896 ;  Diehl,  "  Ueber  das  Verhaltnis  von  Wert  und  Preis 
im  b'konomischen  System  von  Carl  Marx  "  (in  the  "  Festschrift  zur 
Feier  des  25  jahrigen  Bestehens  des  staatsw.  Seminars  in  Halle," 
Jena,  1898)  ;  Labriola,  "  La  teoria  del  valore  di  Carl  Marx,"  Milan, 
1899;  Graziadei,  "La  produzione  capitalistica,"  Turin,  1899; 
Bernstein,  "  Die  Voraussetzungen  des  Socialismus  und  die  Auf- 
gaben  der  Socialdemokratie,"  Stuttgart,  1899;  Masaryk,  "Die 
philosophischen  und  sociologischen  Grundlagen  des  Marxis- 
mus,"  Vienna,  1899;  Weisengriin,  "Das  Ende  des  Marxismus," 
Leipzig,  1899. 


126       RECENT   LITERATURE  ON   INTEREST 

that  the  great  test  has  been  decidedly  against 
Marx  and  his  theories  of  value  and  surplus 
value,  and  that  for  these  the  beginning  of  the 
end  seems  to  be  at  hand. 

But  the  period  under  discussion  presents  us 
with  another  very  peculiar  theoretical  develop- 
ment which  must  be  mentioned  in  this  connec- 
tion, and  which  I  have  called  in  another  place 
the  "  vulgar-okonomischen  "  branch  of  the  so- 
cialistic theory  of  exploitation.1  This  peculiar 
phenomenon  may  be  described  as  follows: 
Various  eminent  theorists  of  a  non-socialistic 
tendency,  who  do  not  even  recognize  the  theo- 
retical value-premises  of  the  socialistic  exploita- 
tion theory,  have  yet  adopted  a  general  view  of 
interest  which  in  its  essence  is  identical  with 
the  exploitation  theory  and  differs  from  it  only 
in  its  more  moderate,  more  reserved,  or  less 
consistent  form. 

The  most  characteristic  expressions  of  this 
kind  come  from  Dietzel  and  Lexis.  Dietzel 
confesses  it  to  be  his  opinion  that  in  its 

1  "  Einige  strittige  Fragen  der  Capitalstheorie,"  Vienna,  1900, 
p.  in.  (Also  printed  in  Vol.  VIII  of  the  Zeitschrift  fur  Volks- 
ivirtschaft,  Socialpolitik  und  Verwaltung.} 


THE   EXPLOITATION   THEORY  127 

essence  the  exploitation  theory  is  undeniable, 
and  maintains  that  he  is  obliged  to  accept 
the  view  that  the  interest  phenomenon  is 
a  historical  product  which  is  rooted  in  the 
commercial  law  of  the  present  time,  and  that 
it  is  one  of  those  kinds  of  income  which  in  a 
form  of  society  like  the  present  are  justly 
blamed  as  necessarily  opposed  to  the  maxim 
suum  cuique}  Lexis  expresses  the  opinion 
that  the  normal  profit  on  capital  is  connected 
with  the  relations  of  power  brought  about  by 
the  possession  or  non-possession  of  capital. 
The  source  of  the  slave-holder's  profits  is 
unmistakable,  and  the  same  may  be  said  of 
the  profits  of  the  "sweater."  In  the  normal 
relation  of  the  employer  to  the  workman 
there  exists  no  exploitation  of  this  kind,  but 
an  economic  dependence  of  the  workman 
which  undoubtedly  influences  the  division  of 
the  product  of  labour.  The  share  of  the 
workman  in  the  yield  of  production  is  con- 
ditioned by  the  circumstance,  unfavourable  to 
him,  that  he  cannot  utilize  his  working  power 
independently,  but  is  compelled  to  sell  it, 

1  Gottinger  Gelehrte  Anzeigen,  No.  23,  1891,  pp.  935,  943. 


128   RECENT  LITERATURE  ON  INTEREST 

resigning  his  claim  to  the  product  for  a  more 
or  less  adequate  means  of  subsistence.1  On 
another  occasion  Lexis  still  more  clearly  ex- 
plains this  opinion  of  his  on  the  origin  of 
interest  by  saying  that  the  capitalistic  seller, 
the  producer  of  raw  material,  the  manufacturer, 
the  wholesale  dealer,  the  retailer,  make  profits 
in  their  business  by  selling  at  a  higher  price 
than  they  buy,  thereby  raising  the  cost  price 
of  their  goods  by  a  certain  per  cent.  The 
labourer  alone  is  unable  to  get  a  similar 
advance  of  price.  On  account  of  his  un- 
favourable situation  with  reference  to  the 
capitalist  he  is  compelled  to  sell  his  labour 
at  the  price  which  it  costs  himself,  namely, 
the  necessary  means  of  subsistence.  Thus, 
even  if  capitalists  by  buying  goods  at  a  higher 
price  lose  again  a  part  of  what  they  win  as 
sellers,  these  advanced  prices  retain  their  full 
significance  for  the  wage-earner  who  buys, 
and  effects  the  transfer  of  part  of  the  value 
of  the  total  product  to  the  capitalist  class.2 
In  all  these  statements  the  idea  is  unmis- 


Vol.  XIX,  p.  335  sq. 
2  Cown&sjahrbucher,  N.F.,  Vol.  XI  (1885),  p.  453. 


THE   EXPLOITATION   THEORY  129 

takably  expressed  that  profits  —  and  not 
merely  some  excessive  portion  acquired  under 
especially  burdensome  circumstances,  but  ordi- 
nary, normal  profits  as  such  —  arise  from  the 
pressure  which  the  possessing  classes  exert  on 
the  non-possessing  by  availing  themselves  of 
the  stronger  position  which  they  hold  in  the 
struggle  for  price,  an  idea  which  is  essentially 
the  same  as  that  which  forms  the  essence  of 
the  socialistic  theory  of  exploitation. 

In  order  to  characterize  these  statements, 
attention  should  be  called  to  two  circumstances 
which  may  bear  some  relation  to  each  other. 
The  first  is  that  up  to  the  present  time  they 
have  been  presented  as  occasional  statements 
only,  and  have  been  made  on  occasions  which 
prompted  the  authors  to  a  confession  of  their 
own  opinions  on  the  interest  problem,  but  did 
not  force  them  to  a  systematic  defence  and 
explanation  of  their  views,  namely,  on  the  occa- 
sion of  a  critical  review  of  other  people's 
theories  (Marx's  and  my  own).  The  second 
circumstance  is  that  these  statements  have  pre- 
sented themselves  hitherto  only  as  simple 
expressions  of  opinion,  as  confessions  of  faith 


130       RECENT   LITERATURE   ON   INTEREST 

of  the  authors,  for  which  a  connected,  theoreti- 
cally tenable  foundation  has  neither  been  given 
nor  attempted.  Dietzel  does  not  add  a  word 
in  support  of  his  statements,  and  the  brief 
remarks1  with  which  Lexis  accompanies  the 
expression  of  his  opinion  are  so  vague  and 
leave  the  problem  so  plainly  unexplained  that 
the  author  himself  will  hardly  claim  that  they 
contain,  even  in  general  outlines,  a  really  ade- 
quate explanation. 

In  view  of  the  fact  that  the  theoretical 
grounds  upon  which  the  views  of  the  exploita- 
tion theorists  are  usually  based,  namely,  the 
socialistic  theories  of  value  and  surplus  value, 
are  not  laid  down  by  these  authors  as  a  basis 
for  their  allied  theory  of  interest,  and  in  view 
of  the  fact  that  till  now  no  other  tenable  foun- 


1  Namely,  that,  even  under  the  full  pressure  of  competition,  — 
which  is  the  condition  necessary  to  the  levelling  of  profits  to  the 
normal  rate,  —  capitalistic  sellers  are  yet  able  permanently  to 
maintain  a  surplus  of  value  above  prime  costs,  and  that  this  is  the 
peculiar  fact  which  requires  an  explanation  such  as  will  be  com- 
patible with  the  laws  of  value  and  price,  or  such  as  may  be  plausi- 
bly deduced  from  them.  Yet  there  is  nothing  in  what  Lexis  says 
to  suggest  the  existence  of  these  facts.  Consult  the  exhaustive 
treatment  of  this  subject  in  my  above-mentioned  essay,  "  Einige 
strittige  Fragen  der  Capitalstheorie,"  Vienna,  1900,  p.  no  sq. 


THE   EXPLOITATION   THEORY  131 

dation  has  been  laid  for  it,  as  a  historian  of 
doctrines  I  have  merely  to  register  the  fact  that 
these  opinions  exist,  and  that  for  the  present, 
at  least,  they  exist  merely  as  unproved  non- 
theoretical  statements.  We  must  wait  to  see 
whether  an  earnest  attempt  will  be  made  to 
elevate  these  confessions  of  faith  to  real  theories 
based  upon  some  kind  of  a  foundation,  or 
whether  they  will  die  out  as  mere  expressions 
of  feeling  to  which  the  tendency  of  the  time 
inclines  without  any  attempt  to  bring  them 
into  connection  with  tenable  scientific  prem- 
ises.1 

1 1  have  expressed  myself  more  completely  upon  this  peculiar 
branch  of  the  exploitation  theory  in  my  oft-mentioned  essay, 
"  Einige  strittige  Fragen  der  Capitalstheorie."  A  somewhat 
older  attempt  to  bring  the  exploitation  theory  into  connection 
with  a  value  theory  differing  from  the  socialistic  one  may  be  found 
in  Wittelshb'fer's  "  Untersuchungen  liber  das  Capital,"  Tubingen, 
1890.  This  attempt  is  interesting,  but  in  my  opinion  not  pro- 
found. 


CHAPTER  VIII 

THE  ECLECTICS 

BY  no  means  inconsiderable  in  the  most 
recent  times  is  the  number  or  the  importance 
of  those  theorists  who  base  their  explanation  of 
interest  in  an  eclectic  way  on  elements  of  differ- 
ent theories.  As  I  have  taken  the  opportunity 
on  a  previous  occasion  to  say,  this  is  not  to  be 
wondered  at.1  One  can  scarcely  fail  to  recog- 
nize the  truth,  which  has  been  very  clearly 
brought  to  view  by  the  most  recent  investiga- 
tions in  this  field,  that  more  than  one  group  of 
facts  stand  in  a  casual  relation  with  interest. 
Especially  is  this  the  case  with  the  greater 
fruitfulness  of  capitalistic  production  on  the 
one  hand,  and  of  the  postponement  of  gratifi- 
cation connected  with  every  investment  of 
capital  on  the  other.  On  each  of  these  two 
points  independent  theories  have  been  founded, 
and  as  long  as  no  outcome  in  the  form  of  a 

1  See  "  Capital  and  Interest,"  Smart's  translation,  p.  396. 
132 


THE   ECLECTICS  133 

solution  appeared,  or  was  acknowledged  as 
such,  which  permitted  one  to  view  the  inter- 
workings  of  these  heterogeneous  half  causes 
from  one  single  point  of  view,  authors  of  broad 
vision  who  do  not  close  their  eyes  to  any  of  the 
facts  of  experience  are  easily  led  to  an  eclectic 
combination. 

I  have  already  spoken  of  Loria,  who  combined 
elements  of  the  abstinence  with  those  of  the 
exploitation  theory.1  Diehl  combines  a  sort 
of  indirect  productivity  theory  with  considera- 
tions and  expressions  peculiar  to  the  use  theory.2 
Modes  of  expression  characteristic  of  the  latter 
theory  are  found  in  Sidgwick  side  by  side  with 
arguments  which  expound  and  defend  the  absti- 
nence theory.8  On  this  account  I  think  it 
likely  that  the  modes  of  expression  which 
reflect  the  spirit  of  the  use  theory  are  employed 
in  a  merely  incidental  manner,  and  that  the 
real  opinion  of  that  distinguished  writer  is  ac- 
tually represented  by  the  abstinence  theory. 

1  See  above,  Ch.  IV. 

2  P.  J.  Proudhon,  "  Seine  Lehre  und  sein    Leben,"  Pt.  II, 
Jena,  1890,  pp.  217-225,  and  p.  204. 

3  "  Principles  of  Political  Economy,"  2d  ed.,  London,  1887, 
pp.  167,  168,  255  sg.j  and  264. 


134   RECENT  LITERATURE  ON  INTEREST 

Neurath's  somewhat  vague  expressions  do  not 
indicate  any  clearly  worked-out  theory,  but 
rather  a  partial  agreement  with  or  inclination 
toward  a  whole  series  of  traditional  methods 
of  explanation.1  I  do  not  believe  that  I  shall 
meet  with  opposition,  if  I  place  the  learned  and 
intellectual  author  of  "  Progres  de  la  Science 
Economique  depuis  Adam  Smith,"  Maurice 
Block,  among  the  eclectics.  As  a  convinced 
believer  in  the  complete  justification  of  interest, 
he  could  not  make  up  his  mind  to  abandon  any 
of  the  numerous  conceptions  which  seemed  to 
him  equally  plausible  and  favourable  to  interest. 
In  his  copious  disquisitions  on  that  subject  I 
find  the  productivity  theory  represented  as  well 
as  the  abstinence  and  the  use  theories.2  That 
for  the  eminent  scholar  himself  the  thought 
of  being  considered  an  eclectic  had  no  terrors 
is  proved  by  an  earnest  plea,  doubtless  intended 
as  an  oratio  pro  domo,  which  he  once  made  in 
favour  of  eclecticism.8 

1  "Elemente  der  Volkswirtschaftslehre,"  2d  ed.,  Vienna,  1892, 
pp.  282  sg.,  313  sg.,  and  324  sg. 

2  See  "Progres  "  (Paris,  1890),  Vol.  II,  pp.  319,  320,  328,  335 
sg. ;  also  pp.  321,  326,  339,  340-342,  and  348. 

8  Ibid.,  p.  334  5  see  also  p.  349. 


THE   ECLECTICS  135 

Charles  Gide's  expressions  seem  to  me  to  lean 
partly  toward  the  use  and  partly  toward  the 
agio  theory,1  Nicholson's  partly  toward  the 
agio  and  partly  toward  the  abstinence  theory.2 
The  latter  combination  appears  rather  fre- 
quently in  recent  times,  as  I  have  shown  in 
Chapters  II  and  IV. 

Among  the  authors  inclined  to  eclecticism 
Dietzel  occupies  a  special  place.  This  always 
intellectual,  but  not  always  coolly  reflective, 
author,  in  a  detailed  review  of  my  theory  of 
interest,  has  acknowledged  himself  to  be  an 
eclectic  on  principle,  in  the  sense  that  he 
regards  the  different  current  theories  of  inter- 
est, especially  the  exploitation  and  productiv- 
ity theories  taken  together,  as  pertinent  and 
applicable  each  to  a  part  of  the  phenomenon  of 
interest.  He  thinks  that  "  in  the  field  of  inter- 
est different  explanations,  conditioned  by  the 
difference  in  the  economic  positions  and  rela- 
tions of  individuals,  should  be  formulated  for 
the  different  categories  of  socio-economic  phe- 

1  "Principes  cTEconomie  Politique,"  5th  ed.,  p.  451,  footnote. 

2  "Principles  of  Political  Economy,"  London,  1893-1897;  see 
especially  Vol.  I,  p.  388,  and  Vol.  II,  pp.  217  and  219. 


136       RECENT  LITERATURE   ON   INTEREST 

nomena."  For  example,  if  the  hirer  of  a  piano 
or  a  house  possesses  a  capital  large  enough  for 
the  purchase  of  the  piano  or  house,  yet  prefers 
to  invest  or  leave  it  in  a  productive  undertaking, 
the  interest  which  the  possessor  of  the  house  or 
piano  receives  may  be  fittingly  explained  by 
the  productivity  of  capital.  If,  however,  the 
tenant  does  not  possess  capital  sufficient  to  buy 
the  hired  object,  then  the  interest  could  only 
be  explained  as  an  exploitation  of  the  tenant, 
and  the  "  exploitation  theory  (undeniable  in  its 
essence)  becomes  the  explanation  of  interest."1 
Dietzel  also  defends  the  use  theory,2  and 
finally,  if  I  have  correctly  understood  him, 
grants  to  my  theory  of  interest  justification  for 
a  certain  group  of  interest  phenomena,  namely, 
for  the  explanation  of  interest  in  the  case  of 
credit  granted  for  purposes  of  consumption.8 
As  I  fully  explained  in  another  place4  not 
long  ago,  I  consider  Dietzel's  point  of  view 
regarding  methods  as  very  unfortunate  and 

1  Gottinger  Gelehrtt  Anzeigen,  1891,  No.  23,  p.  930  sq.,  espe- 
cially pp.  932-935- 

2  Ibid.y  p.  933.  8  Ibid.,  p.  932  sq. 

4  "  Einige  strittige  Fragen  der  Capitalstheorie,"  Vienna,  1900, 
p.  84  sq. 


THE  ECLECTICS  137 

quite  untenable.  Something  may  indeed  be 
said  against  eclecticism  of  every  kind.  Still 
it  makes  a  great  difference  whether,  as  eclec- 
tics have  been  accustomed  to  do,  one  invents 
for  the  explanation  of  a  phenomenon  a  theory 
in  which  incoherent  elements  of  different  theo- 
ries are  combined  into  an  external  unity,  or 
whether,  as  Dietzel  desires,  for  each  group  of 
instances  of  one  and  the  same  phenomenon 
one  works  out  or  recognizes  a  totally  new  and 
fundamentally  different  theory.  If  that  form 
of  income,  which  economists  are  accustomed 
to  comprehend  under  the  head  of  interest  or 
rent  of  capital,  in  contradistinction  to  rent  of 
land,  wages  of  labour,  and  profits  of  the  en- 
trepreneur, has  anything  really  characteristic 
about  it  which  binds  together  the  cases  be- 
longing under  this  head  and  separates  them 
from  the  other  sorts  of  income,  then  that  char- 
acteristic something  cannot  possibly  be  differ- 
ent in  every  case,  certainly  not  fundamentally 
different  and  even  contradictory.  Neverthe- 
less, he  who,  with  Dietzel,  attempts  to  explain 
instances  of  the  same  fundamental  phenome- 
non by  means  of  contrasting  theories,  in  the 


138       RECENT   LITERATURE   ON   INTEREST 

first  place  cannot  avoid  getting  entangled  in 
absurd  inferences ;  as,  for  example,  Dietzel, 
when  he  concludes  that  the  possessor  of  a 
house  who  in  two  succeeding  years  lets  the 
same  luxurious  dwelling  for  2000  florins,  one 
year  to  the  manager  of  a  bank  with  a  salary 
of  15,000  florins,  and  the  second  year  to  a 
manufacturer  with  an  income  from  property 
of  15,000  florins,  owes  his  interest  in  the  first 
case  to  exploitation  and  in  the  second  to  the 
productivity  of  capital !  In  the  second  place, 
he  cannot  avoid  entanglement  in  the  most 
obvious  contradictions,  since  each  contrasting 
theory  contains  premises  which  we  must  ac- 
knowledge if  we  wish  to  explain  a  single  in- 
stance in  the  spirit  of  that  theory,  and  which 
are  in  complete  opposition  to  the  premises  of 
other  theories  which  it  would  be  likewise  neces- 
sary to  recognize  in  order  to  explain  other 
instances  according  to  Dietzel's  plan.  Can 
any  one  who  regards  the  exploitation  theory 
as  essentially  correct  explain  any  given  case 
of  interest  in  the  spirit  of  the  productivity 
theory  or  vice  versa  ?  In  my  opinion,  Dietzel 
has  been  able  to  escape  these  palpable  incon- 


THE   ECLECTICS 


139 


veniences  only  because  he,  perhaps  rather 
hastily,  announced  his  maxim  in  the  capacity 
of  a  critic  instead  of  that  of  a  systematic 
exponent  of  doctrines,  and  therefore  had  no 
occasion  to  attempt  to  put  its  applicability  to 
a  practical  test. 


CHAPTER  IX 

THE  PRESENT  STATE  OF   OPINION 

THUS  even  in  our  days  very  many  and  very 
different  opinions  are  struggling  for  mastery. 
The  final  issue  of  the  struggle  is  certainly  not 
yet  decided.  But  the  battle  has  not  remained 
stationary.  Many  an  undoubted  success  and 
many  an  undoubted  defeat  have  been  witnessed 
on  this  vast  field  of  conflict.  Certain  views 
have  clearly  pushed  into  the  foreground  and 
are  advancing,  while  others  are  retreating  or 
are  engaged  in  a  difficult  defence  of  some  un- 
favourable position  in  the  rear,  the  strongest 
fortifications  of  which  have  already  fallen.  If 
I  should  venture  to  draw  a  picture  of  the  pres- 
ent state  of  the  combat  as  it  appears  to  me, 
I  would  draw  the  lines  as  follows:  — 

On  one  of  the  main  fronts  of  the  many-sided 
and  much-divided  battlefield  the  exploitation 
theory  on  one  side  has  been  fighting  with  the 
different  theories  favourable  to  interest  on  the 

140 


THE   PRESENT   STATE   OF   OPINION          141 

other.  Here  the  issue  seems  to  me  to  be  no 
longer  doubtful.  The  exploitation  theory  is 
vanquished.  On  account  of  the  compulsory 
abandonment  of  the  theory  of  value  upon 
which  it  was  based,  it  has  been  forced  into 
an  untenable  position.  To  be  sure  the  battle 
will  be  continued  for  a  time  by  its  adherents, 
and  the  dogma  of  exploitation  will  not  be 
likely  soon  to  vanish  from  that  part  of  the 
party  platforms  designed  for  purposes  of  agita- 
tion. But  science  will  probably  soon  place  it 
forever  in  the  list  of  errors  which  have  finally 
been  overcome.  The  "  vulgar-okonomische  " 
branch  of  this  theory,  of  which  we  have  spoken, 
can  hardly  possess  sufficient  motive  power  to 
be  able  to  regenerate  and  fruitfully  to  develop 
the  dying  doctrine. 

The  conflict  between  the  rival  theories 
which  are  favourable  to  interest,  if  I  may  use 
this  brief  but  not  fully  adequate  phrase  for 
theories  unassociated  with  parties,  has  not  re- 
mained without  lasting  results.  I  think  that 
nowadays  it  may  be  considered  as  a  recognized 
truth  that  the  final  causes  of  the  phenomenon 
of  interest  are  to  be  found  on  the  one  hand  in 


142       RECENT   LITERATURE   ON   INTEREST 

certain  facts  of  the  technique  of  production, 
and  on  the  other  in  the  postponement  of  enjoy- 
ment, precisely  or  very  nearly  as  Professor 
Marshall  has  expressed  himself  in  his  popular 
catchwords,  the  "  prospectiveness "  and  the 
"productiveness"  of  capital.  Those  branches 
of  theory  which  stand  outside  of  this  truth  or 
are  not  affected  by  it  in  the  course  of  their 
explanations  do  not  seem  to  me  to  enjoy  any 
prospect  that  a  backward  movement  will  turn 
the  course  of  development  into  the  side  path 
which  they  now  occupy.  This  is  the  case,  I 
think,  with  several  varieties  of  labour  theories 
and  with  the  genuine,  outspoken  productivity 
theories.  These  latter  particularly,  which  once 
played  such  an  important  role  in  economic 
theory,  viewed  from  our  modern  standpoint, 
have  two  principal  defects  which  are  daily  be- 
coming more  and  more  generally  recognized 
and  acknowledged.  They  cannot  reach  their 
goal  by  a  logical  path  without  turning  a  logical 
somersault,  and  without  leaving  completely  out 
of  consideration  a  full  half  of  the  actual  causes 
of  the  phenomenon  of  interest.  It  seems  to 
me  to  be  a  distinctive  symptom  of  the  hopeless 


THE   PRESENT   STATE  OF  OPINION          143 

condition  of  these  theories  that  attempts  have 
lately  been  made,  —  as  I  think,  in  violation  of 
the  actual  condition  of  things  and  of  historical 
truth,  —  entirely  to  deny  their  existence  and  to 
impute  to  their  representatives  other  ideas 
which  more  nearly  approach  modern  views  of 
the  problem.1 

The  most  vigorous  part  of  the  development 
tends  by  common  consent  toward  one  goal, 
the  correctness  of  the  choice  of  which,  at  least 
as  an  object  of  knowledge,  only  a  few  at  the 
present  time  will  doubt ;  and  which  will  surely 
be  reached  sooner  or  later,  however  much  one 
may  waver  and  hesitate  regarding  the  choice 
of  the  most  direct  route  thereto.  The  aim  is 
to  find  an  explanation  so  appropriate  to  both 
groups  of  causes,  —  the  productive-technical 
facts  and  the  psychological  facts  connected 
with  the  postponement  of  gratification,  —  that 
not  only  every  part  of  the  explanation  will  be 
in  itself  incontestable  from  the  standpoint  both 
of  facts  and  of  logic,  but  that  both  halves  of 
the  explanation  will  constitute  a  whole,  formally 
and  logically  faultless. 

1  See  my  Preface  to  the  2d  ed.  of  "  Capital  and  Interest." 


144   RECENT  LITERATURE  ON  INTEREST 

Of  the  different  theories  which  are  rivals  in 
the  struggle  for  the  attainment  of  this  goal  the 
use  theory  is  one  to  which  it  must  be  conceded 
that,  correctly  and  completely  understood,  it 
is  connected  with  both  groups  of  causes,  and 
is,  therefore,  sufficiently  comprehensive;  but  in 
the  course  of  its  explanations  it  encounters 
weighty  objections  in  the  realms  of  both  fact 
and  logic,  which  it  seems  to  me  are  at  the  pres- 
ent time  being  felt  and  appreciated  as  such  in 
ever  widening  scientific  circles. 

The  abstinence  theory  also  finds  difficulties 
of  fact  and  of  logic  in  the  method  of  explana- 
tion it  has  adopted.  These  I  have  tried  in 
the  above  pages  to  make  more  distinct  than 
hitherto,  and  on  this  point  it  seems  to  me  that 
the  manner  in  which  they  attempt  to  do  justice 
to  "productiveness"  side  by  side  with  "pro- 
spectiveness,"  which  gives  the  characteristic 
stamp  to  their  explanation,  is  not  calculated  to 
lead  to  a  happy  coalescence  into  a  really  united 
theory. 

The  eclectics  naturally  have  to  contend  with 
the  special  weaknesses  of  each  theory  taken 
into  the  eclectic  combination  as  well  as  with 


THE   PRESENT   STATE   OF  OPINION          145 

the  resistance  of  the  incongruous  elements  to 
coalescence  into  a  harmonious  whole. 

Since  the  time  of  Rae  the  postponement  of 
gratification  has  been  understood  in  a  way 
which  is  free  from  the  objectionable  interpreta- 
tions of  the  abstinence  theory.  Yet  in  the 
second  part  of  his  explanation  Rae  remained 
entangled  in  the  mistakes  of  thought  and 
assumption  characteristic  of  the  productivity 
theories.  Jevons  again  was  more  fortunate  in 
this  second  part,  but  less  so  in  the  treatment 
of  "  prospectiveness,"  since  he  here  turned  back 
into  the  paths  of  the  abstinence  theorists,  and 
altogether  missed  the  prime  requisite  of  a  logi- 
cally harmonious  combination  of  the  different 
grounds  of  explanation. 

The  youngest  member  in  the  series  of  rival 
interest  theories,  the  agio  theory,  has  made  an 
experiment,  which,  however  its  outcome  may 
be  regarded,  has  at  least  aimed  to  keep  clearly 
and  consciously  before  our  eyes  the  goal  to  be 
attained,  namely,  a  coherent  explanation  of  the 
phenomenon  of  interest  derived  from  a  com- 
prehensive consideration  of  all  the  final  causes 
which  have  an  influence  upon  it. 


146       RECENT   LITERATURE   ON   INTEREST 

No  one  will  doubt  that  it  has  remained  true 
to  the  first  part  of  the  programme.  A  char- 
acteristic piece  of  evidence  regarding  the  com- 
prehensive consideration  it  has  given  to  both 
"  productiveness  "  and  "  prospectiveness  "  is  the 
fact  that  some  of  the  friends  of  these  ideas 
have  accompanied  their  approval  of  the  "agio 
theory  "  with  the  remark  that  it  is  in  its  essence 
a  theory  of  productivity,  and  others  again  with 
the  remark  that  it  is  really  an  abstinence 
theory.1  Perhaps  a  still  more  striking  bit  of 
evidence  along  this  line  is  a  certain  reproof 
expressed  by  one  of  my  most  prominent  adver- 
saries. When  Professor  Marshall  reproaches 
me  with  attaching  an  exaggerated  importance 
to  the  differences  of  opinion  of  my  predeces- 
sors in  the  theory  of  interest,  and  in  proof  calls 
attention  to  the  fact  that  the  consideration  of 
"  prospectiveness  "  and  "  productiveness  "  as  of 

1  In  a  detailed  review  of  my  "  Positive  Theory  "  in  De  Econo- 
mist, March,  1889,  p.  217,  Pierson  says:  "Our  author  stands 
wholly  on  the  ground  of  the  productivity  theory."  Macfarlane, 
on  the  other  hand,  denotes  a  special  paragraph  (107)  of  his 
work  "  Value  and  Distribution "  to  the  demonstration  of  the 
proposition  that  "abstinence  is  recognized  in  the  exchange 
theory." 


THE   PRESENT   STATE   OF  OPINION          147 

equal  importance  is  to  be  found  in  their  ex- 
pressed views,  it  is  evident  that  he  regards 
this  method  of  treatment  as  common  to  both 
doctrines,  and  is  consequently  by  no  means 
inclined  to  deny  it  to  mine. 

Whether  the  agio  theory  has  also  been  suc- 
cessful in  the  second  part  of  the  programme, 
or  at  least  more  successful  than  its  rivals,  will 
be  made  evident  in  the  continued  discussion  of 
the  subject.  The  closer  the  results  of  previous 
investigation  and  criticism  have  drawn  the 
lines  within  which  the  paths  leading  to  the 
goal  must  be  sought  and  laid  out,  the  more 
careful  in  the  future  will  be  the  search  and  the 
investigation  within  this  region.  We  know 
our  way  approximately,  or,  as  J.  B.  Clark,  per- 
haps somewhat  optimistically  but  not  entirely 
incorrectly,  said  not  long  ago  in  an  inspiring 
survey  of  the  "  Future  of  Economic  Theory  " : 
"  Explanations  of  interest  that  cannot  be  far 
from  the  truth  have  been  offered."1 

From  now  on  the  problem  will  be  to  test  the 
different  paths  which  we  have  been  invited  to 
take  by  the  rival  theories  of  the  present  day, 

Quarterly  Journal  of  Economics,  October,  1898,  p.  i. 


148        RECENT   LITERATURE   ON   INTEREST 

as  to  their  direct  and  continuous  connection 
with  the  goal  toward  which  we  are  travelling. 
This  test  must  be  applied  with  more  boldness, 
severity,  and  discrimination,  than  formerly, 
since  we  already  possess  sufficient  orientation 
of  the  casual  sort,  and  no  further  directions  of 
a  roundabout  and  not  strictly  accurate  charac- 
ter can  at  the  present  time  advance  us  on  our 
way.  Whatever  may  be  the  final  outcome  of 
this  critical  development  of  doctrine  in  the 
future,  one  thing  seems  to  me  already  cer- 
tain, namely,  that  the  now  awakened  critical 
spirit  will  not  be  content  with  any  solution 
which  does  not  satisfy  the  severest  scientific 
demands,  and  that  the  danger  that  rest  may  be 
found  in  one  of  those  shallow  solutions  which 
are  easily  embodied  in  convenient  catchwords 
but  cannot  be  systematically  thought  out  to 
the  end,  is  forever  past. 


INDEX  OF  AUTHORS   MENTIONED 


Adler,  Georg,  124. 

Edgeworth,  F.  Y.,  I  in. 

Andrews,  E.  B.,  iin.1 

Effertz,  I2n,  I3n. 

Aschehoug,  I2n. 

Einarsen,  I2n. 

Ely,  Richard  T.,  iin. 

Barone,  I2n,  18. 

Engels,  124,  I25n. 

Benini,  I2n. 

Bernstein,  125. 

Fireman,  124. 

Bilgram,  I  in. 

Fisher,  Irving,  iin. 

Block,  Maurice,  i6n,  90,  134. 

Folbe-Hansen,  I2n. 

Bohm-Bawerk,  v,  8,  n,  18,  26n, 

27n,  28n,  43,  46n,  56n,  63,  66n, 

Galiani,  6. 

76n,  78n,  114,  H5n,  Ii6n,  n8n, 

George,  Henry,  15. 

I23n,   I24n,   I25n,   I26n,   I3on, 

Giddings,  iin,  63. 

13  in,    I32n,    133,    I36n,    I43n, 

Gide,  Charles,  i6n,  135. 

I46n. 

Graziadei,  124,  125. 

Bonar,  J.,  ion,  nn. 

Graziani,  iin,  2  in. 

Green,  David  J.,  iin. 

Carver,  iin,  i8n,  2on,  42,  48,  49, 

50,  51,  52,  55,  56,  58,  59,  60,  61, 

Hadley,  Arthur  T.,  iin. 

62. 

Hamilton,  Count,  12. 

Cauwes,  xiv. 

Hermann,  ix,  xi. 

Clark,  J.  B.,  vi,  9,  147. 

Hobson,  John,  iin. 

Coletti,  124. 

Conrad,  i6n. 

Jaeger,  Oskar,  I2n. 

Cossa,  Luigi,  xvii. 

Jevons,    W.    Stanley,    vi,     xxxii, 

Crocini,  iin. 

xxxiii,    6,   7,    10,    I3n,   28,    42, 

62,  145. 

Davidson,  D.,  I2n. 

Diehl,  i6n,  91,  125,  133. 

Kautsky,  125. 

Dietzel,    i6n,    90,    126,    130,   135, 

Knies,  116. 

136,  137,  138- 

Komorzynsky,  125. 

1  The  letter  n  appended  to  page  numbers  refers  to  the  foot-note  at  bottom 
of  page. 


149 


ISO 


INDEX   OF   AUTHORS   MENTIONED 


Labriola,  125. 

Lafargue,  124. 

Lande,  124. 

Launhardt,  xxxiii,  7,  8. 

Leffler,  I2n. 

Lehr,  1411. 

Leroy-Beaulieu,  xiv. 

Lexis,  124,  126,  127,  128,  130. 

Loria,  i8n,  20,  2on,  21,  124,  125, 

133- 

Lowrey,  nn. 

McCulloch,  163. 

Macdonald,      Miss      Alice,     viii, 

xlii. 
Macfarlane,  nn,  i8n,  ign,  42,  62, 

146. 

Macvane,  S.  N.,  9,  19,  20,  24. 
Marshall,  Alfred,  vii,  ix,  x,  xi,  xiii, 

xiv,  xv,  i8n,  2on,  21,  22,  23,  24, 

25,  26,  27,  28,  29,  30,  32,  33,  36, 

37.  39,  42,  43. 44,  45, 46,  47,  48, 

49,  62,  142,  146. 
Marx,  Karl,  xxxix,  xl,  xli,  78,  122, 

123,  126,  129. 
Masaryk,  125. 
Menger,    Karl,    ix,    xi,   xvii,    15, 

1 6. 

Mill,  James,  63. 
Mill,  John  Stuart,  xvi,  42. 
Mixter,  C.  W.,  xvii,  I  in. 
Montemartini,  nn. 
Morgenstierne,  I2n. 

Neurath,  134. 
Nicholson,  135. 

Pantaleoni,  Maffeo,  90. 
Pareto,  15. 


Patten,  Simon  N.,  vi,  9. 
Philippovich,  91. 
Pierson,  N.  G.,  I2n,  146. 
Proudhon,  91,  133. 

Rae,  John,  viii,  xvi-xxxix,  6,  7,  42, 

145- 

Ricardo,  65,  74,  75. 
Ricca- Salerno,  nn. 
Rodbertus,  122. 
Roscher,  xiv. 
Rossi,  xiv. 

Sax,  Emil,  xxxiii,  7,  8. 

Say,  J.  B.,  xiv,  15. 

Schellwien,  15. 

Schmidt,  124. 

Senior,  ix,  xi,  26,  28. 

Sidgwick,  133,  47n. 

Smart,     William,     v,     vii,      nn, 

i8n. 
Smith,  Adam,  xvi,  xxv,    14,    i6n, 

93- 

Soldi,  124. 
Sombart,  125. 
Stiebeling,  124. 
Stolzmann,  64,  65,  67,  68,  69,  72, 

73,  74,  75,  76»  77,  78»  79,  81,  83, 

84, 85,  86,  87,  89. 
Sulzer,  George,  I2n,  I3n. 

Taussig,  i  in. 
Thunen,  no. 
Turgot,  6,  15. 

Wagner,  Adolf,  I3n,  64,  72. 
Walker,  Francis  A.,  viii,  ix,  x,  xi, 

90. 
Walras,  15,  1 6. 


INDEX    OF   AUTHORS   MENTIONED 


Weisengriin,  125. 
Wenkstern,  125. 
Westergaard,  I2n. 
Wicksell,  Kunt,  I2n. 
Wieser,  90-94,  95,  96,  98,  99,  101, 
102, 104, 106  107, 108, 109,  no, 


112, 113, 114,  115,  116,  117,  118, 

119,  120. 

Wittelshofer,  131. 
Wolf,  Julius,  91,  9 in,  92,  124. 

Zaleski,  Ladislas,  ion,  16. 


THE  PLAIN  FACTS  AS  TO 
THE  TRUSTS  AND  THE  TARIFF 

With  Chapters  on  The  Railroad 
Problem  and  Municipal  Monopolies 

By  GEORGE  L.  BOLEN 
Cloth  X2mo  $1.50  net 


Comments  of  the  Press  on  the  First  Edition  : 

"The  book  contains  a  great  deal  of  common  sense." — Chris- 
tian Work. 

"  A  valuable  contribution  to  the  literature  on  trusts,  and  de- 
serves to  be  studied  by  all  interested  in  the  subject.  Mr.  Bolen 
has  collected  a  wonderful  mass  of  valuable  information,  and  he 
deals  with  the  facts  presented  in  a  thoroughly  impartial  manner. 
He  steers  a  safe  middle  course  between  the  extravagances  of  so- 
cialism, and  perfervid  support  of  the  claims  of  collectivism." — Pall 
Mall  Gazette,  London. 

"  Supplies  a  wealth  of  fact  expressed  in  plain,  practical,  every- 
day language,  such  as  may  be  easily  understood  by  any  reader 
of  ordinary  intelligence.  In  regard  to  the  trusts  especially, 
Mr.  Bolen  has  certainly  succeeded  in  making  a  difficult  subject 
easy,  and  in  adding  considerably  to  our  knowledge."  — Imperial 
Argus,  London. 

"  This  useful  book  on  the  trusts  and  the  tariff  is  very  oppor- 
tune, and  explains  in  a  masterly  way  much  that  is  to  be  said  for 
and  against  them.  The  explanation  of  the  tariff  is  particularly 
clear."  —  Morning  Post,  London. 


THE  MACMILLAN  COMPANY 

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The  Control  of  Trusts 

An  Argument  in  Favor  of  Curbing  the  Power  of  Monopoly  by  a 
Natural  Method.  By  JOHN  BATES  CLARK,  Professor  in  Columbia 
University,  Author  of  "The  Philosophy  of  Wealth,"  "The  Distribu- 
tion of  Wealth,"  etc.  Cloth.  I2mo.  60  cents  net. 

"  It  aims  to  avoid  duplicating  work  that  has  been  done  by  Professor  Jenks,  Pro- 
fessor Ely,  Professor  Von  Halle,  and  others.  It  gives  no  statistics,  no  description  of 
the  various  forms  which  trusts  take  in  America  and  elsewhere,  and  no  history  of  the 
development  of  those  organizations  in  America.  The  work  is  argumentative  and 
advocates  a  particular  policy  that,  while  quite  conservative,  would,  as  the  author 
maintains,  be  so  effective  as,  on  the  one  hand,  to  excite  vigorous  opposition  before  it 
can  be  adopted  by  the  government,  and  on  the  other  hand,  to  meet  the  popular 
demand  after  it  shall  be  adopted.  It  is  a  policy  that,  as  is  claimed,  has  the  power  to 
insure  to  American  industries  a  long  lead  in  the  fierce  international  rivalries  that  are 
imminent,  without  surrendering  economic  freedom  at  home  or  suppressing  any  class 
of  our  own  citizens."  — FINANCIAL  REVIEW. 

"  Professor  Clark's  little  book  is  the  best  statement  in  small  compass  of  the  trust 
problem  that  we  have  yet  seen.  He  accepts  the  trust  as  an  inevitable  factor  in  eco- 
nomic progress  and  decries  the  attempt  to  legislate  it  out  of  existence  by  summary 
laws.  The  remedy  for  the  evils  that  attend  the  concentration  of  power  and  capital  in 
a  few  hands  is  to  be  found  in  the  retention  of  the  principle  of  competition  and  the 
suppression  of  illegal  and  predatory  methods  on  the  part  of  the  trusts.  Regulative 
rather  than  drastic  legislation  is  needed."  — PUBLIC  OPINION. 


Monopolies  and  Trusts 

By  RICHARD  T.  ELY,  Ph.D.,  LL.D.,  Director  of  the  School  of  Eco- 
nomics and  Political  Science  and  Professor  of  Political  Economy  at 
the  University  of  Wisconsin;  President  of  the  American  Economic 
Association.  I2mo.  Half  Leather.  $1.25  net. 

"  A  highly  valuable  contribution  to  an  important  subject,  ...  the  best  piece  of 
work  that  Professor  Ely  has  yet  done.  ...  In  any  case  all  readers  will  be  impressed 
by  the  perfect  candor  and  scientific  reserve  which  characterize  the  book." 

—  Prof.  CHARLES  A.  BULLOCK,  in  the  American  Journal  of  Sociology. 

"  Probably  no  man  has  a  better  claim  than  Professor  Ely  to  speak  with  authority 
on  the  industrial  movement."  —  Tribune,  Chicago. 

"  Suggestive,  explicit,  and,  in  a  word,  a  capital  text-book  for  the  student  or  for  the 
man  of  business."—  Times-Herald,  Chicago. 


THE  MACMILLAN  COMPANY 

66  FIFTH  AVENUE  NEW  YORK 


The  Economics  of  Distribution 

By  JOHN  A.  HOBSON,  author  of  "The  War  in  South  Africa,11 
etc.  I2mo.     Half  Leather.     $1.25  net. 

"  A  welcome  addition  to  the  literature  of  economic  theory.  By  its  critical 
as  well  as  by  its  constructive  work  it  helps  to  force  readers  out  of  the  deep 
rut  in  which  Ricardian  formulas  have  so  long  caused  economic  thought  to 
run."  —  JOHN  B.  CLARK,  in  The  Political  Science  Quarterly. 

"  His  criticism  of  the  modern  development  of  the  theory  of  rent  is  ex- 
tremely clever  and  his  own  statement  of  it  clear  and  well  reasoned."  —  The 
Nation. 

Economic  Crises 

By  EDWARD  D.  JONES,  Ph.D.,  Asst.  Professor  of  Economics  and 
Commercial  Geography,  University  of  Minnesota. 

I2mo.     Half  Leather.     $1.25  net. 

"  Perhaps  the  most  interesting  and  picturesque,  if  not  convincing,  con- 
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to  the  coincident  periodicity  of  sunspots  and  beautiful  harvests,  the  latter 
being  the  efficient  cause  of  low  prices  and  intimately  connected  with  the 
periodical  crises.  The  entire  subject  is  treated  lucidly,  carefully,  and  com- 
prehensively." —  Philadelphia  Press. 


Essays  on  the  Monetary  History  of  the 
United  •  States 

By  CHARLES  J.  BULLOCK,  Ph.D.,  Asst.  Professor  of  Political 
Economy,  Williams  College.    I2mo.    Half  Leather.    $1.25  net. 

"The  work  of  an  original  investigator  who  knows  how  to  popularize. 
The  author  is  frankly  in  sympathy  with  the  wealthier  classes  and  the  urban 
districts  in  their  immemorial  opposition  to  the  currency  expansion  schemes 
immemorially  favored  by  the  poorer  classes  and  the  rural  districts.  .  .  . 
But  over  against  this  defect,  which  will  be  felt  only  by  believers  in  bimet- 
allism or  paper  money,  is  to  be  put  the  spirited  style  which  is  in  part  due  to 
the  strength  of  the  author's  sympathies." —  The  Outlook. 


THE  MACMILLAN  COMPANY 

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7  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

GRADUATE  SOCIAL  SCIENCE  LIBRARY 

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TEL.  NO.  642-0370 

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